A theory of compliance with minimum wage law

Asongu, Simplice and Jellal, Mohamed (2014): A theory of compliance with minimum wage law. Forthcoming in:

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Minimum wage legislation, Compliance , Incentives , Informal sector
• Subjects: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs; K - Law and Economics > K3 - Other Substantive Areas of Law > K31 - Labor Law; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M5 - Personnel Economics > M54 - Labor Management; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements

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