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Minimum wage non-compliance: the role of co-determination

Author

Listed:
  • Laszlo Goerke

    (Trier University, Institute for Labour Law and Industrial Relations in the European Union (IAAEU)
    IZA
    CESifo
    GLO)

  • Markus Pannenberg

    (IZA
    GLO
    Bielefeld University of Applied Sciences and Arts (HSBI))

Abstract

We analyse how co-determination is related to non-compliance with the German minimum wage, which was introduced in 2015. The Works Constitution Act (WCA), the law regulating co-determination at the plant level, provides works councils with indirect means to ensure compliance with the statutory minimum wage. Based on this legal situation, our theoretical model predicts that non-compliance is less likely in co-determined firms because works councils enhance the enforcement of the law. The economic correlates of co-determination, such as higher productivity and wages, affect non-compliance in opposite directions. The empirical analysis, using data from the German Socio-economic Panel (SOEP) for the years 2016 and 2019, demonstrates that non-compliance occurs less often for employees in co-determined establishments, while there is no correlation between non-compliance and the difference between the minimum wage and the wage actually paid.

Suggested Citation

  • Laszlo Goerke & Markus Pannenberg, 2025. "Minimum wage non-compliance: the role of co-determination," European Journal of Law and Economics, Springer, vol. 60(2), pages 365-402, October.
    • Handle: RePEc:kap:ejlwec:v:60:y:2025:i:2:d:10.1007_s10657-024-09811-1
    DOI: 10.1007/s10657-024-09811-1
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    Keywords

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    JEL classification:

    • J - Labor and Demographic Economics
    • J - Labor and Demographic Economics
    • K - Law and Economics
    • K - Law and Economics
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics

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