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Noncompliance Behavior of Risk-Averse Firms Under the Minimum Wage Law

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  • Yang-Ming Chang

    (Kansas State University)

Abstract

This article is concerned with the law evasion (reduced wages) and law avoidance (modified employment) aspects of noncompliance behavior by risk-averse firms under the minimum wage law. It demonstrates that the adverse disemployment effects of a legal minimum wage under the conventional "full compliance" assumption should be modified by an "employment effect" of noncompliance, although it is shown that risk-averse violating firms would employ less labor than they would if they were risk-neutral. Findings suggest that the most effective strategy for motivating risk-averse firms to comply with minimum wage laws is imposing stiffer penalty fees.

Suggested Citation

  • 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.
  • Handle: RePEc:sae:pubfin:v:20:y:1992:i:3:p:390-401
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    Cited by:

    1. Dinkelman, Taryn & Ranchhod, Vimal, 2012. "Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa," Journal of Development Economics, Elsevier, vol. 99(1), pages 27-45.
    2. 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.
    3. גדעון יניב, 1999. "אי-ציות לחוק שכר מינימום והיקף ההעסקה האופטימאלי (באנגלית)," Working Papers 356, National Insurance Institute of Israel.
    4. Yaniv, Gideon, 2006. "On the employment effect of noncompliance with the minimum wage law," International Review of Law and Economics, Elsevier, vol. 26(4), pages 557-564, December.

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