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A theory of compliance with minimum wage law

Author

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  • Asongu, Simplice
  • Jellal, Mohamed

Abstract

In this paper, we introduce firm heterogeneity in the context of a model of non-compliance with minimum wage legislation. The introduction of heterogeneity in the ease with which firms can be monitored for non compliance allows us to show that non-compliance will persist in sectors which are relatively difficult to monitor, despite the government implementing non stochastic monitoring. Moreover, we show that the incentive not to comply is an increasing function of the level of the minimum wage and increasing function of the gap between the minimum wage and the competitive wage rate.

Suggested Citation

  • Asongu, Simplice & Jellal, Mohamed, 2014. "A theory of compliance with minimum wage law," MPRA Paper 57335, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:57335
    as

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    References listed on IDEAS

    as
    1. 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.
    2. Grenier, Gilles, 1982. "On Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 184-187, February.
    3. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    4. Azam, Jean-Paul, 1992. "The Agricultural Minimum Wage and Wheat Production in Morocco (1971-89)," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 1(2), pages 171-191, August.
    5. Yossi Tobol, 2005. "Wage discrimination as an illegal behavior," Economics Bulletin, AccessEcon, vol. 10(4), pages 1-10.
    6. 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.
    7. repec:ebl:ecbull:v:10:y:2005:i:4:p:1-10 is not listed on IDEAS
    8. Jellal, Mohamed, 2012. "Maroc salaire minimum emploi et pauvreté
      [Morocco minimum wage employment and poverty]
      ," MPRA Paper 38491, University Library of Munich, Germany.
    9. Brown, Charles, 1988. "Minimum Wage Laws: Are They Overrated?," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 133-145, Summer.
    10. repec:ebl:ecbull:v:10:y:2004:i:9:p:1-7 is not listed on IDEAS
    11. Cahuc, Pierre & Michel, Philippe, 1996. "Minimum wage unemployment and growth," European Economic Review, Elsevier, vol. 40(7), pages 1463-1482, August.
    12. Ashenfelter, Orley & Smith, Robert S, 1979. "Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 333-350, April.
    13. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Minimum wage legislation; Compliance ; Incentives ; Informal sector;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • 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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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