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Minimum Wage Non-Compliance: The Role of Co-Determination

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  • Laszlo Goerke
  • Markus Pannenberg

Abstract

We analyse in what way co-determination affects 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 impact on the difference between the minimum wage and the amount, which was actually paid. Therefore, co-determination helps to secure the payment of minimum wages.

Suggested Citation

  • Laszlo Goerke & Markus Pannenberg, 2023. "Minimum Wage Non-Compliance: The Role of Co-Determination," CESifo Working Paper Series 10797, CESifo.
    • Handle: RePEc:ces:ceswps:_10797
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    More about this item

    Keywords

    co-determination; labor law; minimum wages; Socio-Economic Panel (SOEP); non- compliance; works councils;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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