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Wage discrimination and partial compliance with the minimum wage law

Author

Listed:
  • Yang-Ming Chang

    (Kansas State University)

  • Bhavneet Walia

    (Kansas State University)

Abstract

This paper presents a simple model to characterize the discriminatory behavior of a non-complying firm in a minimum-wage economy. In the analysis, the violating firm pays one “favored” group of workers the statutory minimum and the other “non-favored” group of workers a sub-minimum. We find conditions under which law enforcement is ineffective in improving the between-group wage differentials. We show that an increase in the minimum wage raises the sub-minimum wage and employment of workers in the non-favored group, but reduces the employment of workers in the favored group. The effect of the minimum wage increase on total employment is unambiguously negative, however.

Suggested Citation

  • Yang-Ming Chang & Bhavneet Walia, 2007. "Wage discrimination and partial compliance with the minimum wage law," Economics Bulletin, AccessEcon, vol. 10(4), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-07j40001
    as

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    File URL: http://www.accessecon.com/pubs/EB/2007/Volume10/EB-07J40001A.pdf
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    References listed on IDEAS

    as
    1. Grenier, Gilles, 1982. "On Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 184-187, February.
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    4. Yossi Tobol, 2005. "Wage discrimination as an illegal behavior," Economics Bulletin, AccessEcon, vol. 10(4), pages 1-10.
    5. Yang-Ming Chang, 1992. "Noncompliance Behavior of Risk-Averse Firms Under the Minimum Wage Law," Public Finance Review, , vol. 20(3), pages 390-401, July.
    6. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
    7. Joan Robinson, 1969. "The Economics of Imperfect Competition," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-1-349-15320-6, December.
    8. Yaniv, Gideon, 2001. "Minimum Wage Noncompliance and the Employment Decision," Journal of Labor Economics, University of Chicago Press, vol. 19(3), pages 596-603, July.
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    11. George J. Stigler, 1974. "The Optimum Enforcement of Laws," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 55-67, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Chang, Yang-Ming & Huang, Biing-Wen & Chen, Yun-Ju, 2012. "Labor supply, income, and welfare of the farm household," Labour Economics, Elsevier, vol. 19(3), pages 427-437.
    2. Weisman Dennis L. & Sanders Shane D. & Moundigbaye Mantobaye, 2012. "An Instructional Exercise in Price Controls: Product Quality, Misallocation, and Public Policy," Journal of Industrial Organization Education, De Gruyter, vol. 6(1), pages 1-21, December.

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    More about this item

    JEL classification:

    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J7 - Labor and Demographic Economics - - Labor Discrimination

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