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Wage discrimination and partial compliance with the minimum wage law

  • Yang-Ming Chang


    (Kansas State University)

  • Bhavneet Walia


    (Kansas State University)

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.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 10 (2007)
Issue (Month): 4 ()
Pages: 1-7

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Handle: RePEc:ebl:ecbull:eb-07j40001
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  1. LaVonne A. Booton & Julia I. Lane, 1985. "Hospital Market Structure and the Return to Nursing Education," Journal of Human Resources, University of Wisconsin Press, vol. 20(2), pages 184-196.
  2. Yossi Tobol, 2005. "Wage discrimination as an illegal behavior," Economics Bulletin, AccessEcon, vol. 10(4), pages 1-10.
  3. Orley Ashenfelter & Robert Smith, 1977. "Compliance with the Minimum Wage Law," Working Papers 478, Princeton University, Department of Economics, Industrial Relations Section..
  4. repec:ebl:ecbull:v:10:y:2005:i:4:p:1-10 is not listed on IDEAS
  5. 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.
  6. Yaniv, Gideon, 1994. "Complaining about noncompliance with the minimum wage law," International Review of Law and Economics, Elsevier, vol. 14(3), pages 351-362, September.
  7. Alan Manning & Ted To, 2002. "Oligopsony and Monopsonistic Competition in Labor Markets," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 155-174, Spring.
  8. repec:ebl:ecbull:v:10:y:2004:i:9:p:1-7 is not listed on IDEAS
  9. 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.
  10. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
  11. Grenier, Gilles, 1982. "On Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 184-87, February.
  12. 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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