IDEAS home Printed from https://ideas.repec.org/p/ess/wpaper/id180.html
   My bibliography  Save this paper

Turning A Blind Eye: Costly Enforcement, Credible Commitment And Minimum Wage

Author

Listed:
  • Arnab K. Basu

Abstract

In many countries, the authorities turn a blind eye to minimum wage laws that they have themselves passed. But if they are not going to enforce a minimum wage, why have one? Or if a high minimum wage is not going to be enforced one hundred percent, why not have a lower one in the ¯rst place? Can economists make sense of such phenomena? This paper argues that we can, if a high o±cial minimum wage acts as a credible signal of commitment to stronger enforcement of minimum wage laws. We demonstrate this as an equilibrium phenomenon in a model of a monopsonistic labor market in which enforcement is costly, and the government cannot pre-commit to enforcement intensity. In this setting we also demonstrate the paradoxical result that a government whose objective function gives greater weight to e±ciency relative to distributional concerns may end up with an outcome that is less e±cient. The paper concludes by suggesting that the explanations o®ered in this paper may apply to a broad range of phenomena where regulations are imperfectly enforced.

Suggested Citation

  • Arnab K. Basu, 2005. "Turning A Blind Eye: Costly Enforcement, Credible Commitment And Minimum Wage," Working Papers id:180, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:180
    as

    Download full text from publisher

    File URL: http://www.eSocialSciences.com/data/articles/Document1192005220.6365625.pdf
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ess:wpaper:id:180. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Padma Prakash (email available below). General contact details of provider: http://www.esocialsciences.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.