Abstract
The present note examines the effect of minimum wage noncompliance on the sub-minimum wage rate in a competitive labor market. The note shows that noncompliance shifts leftward the demand curve of labor and shifts rightward the supply curve of labor, unambiguously leading to a fall in the equilibrium sub-minimum wage rate. Two implications follow: first, contrary to a major result in the minimum wage literature, noncompliance must not necessarily reduce employment (as compared to the pre-law level); it may even increase employment if the deterrent effect of the expected penalty is more than offset by the inducement effect of a lower wage rate. Secondly, and more importantly, if the minimum wage law aims at improving low wages, workers are better off without a law than with one which is not accompanied with sufficient inducement to ensure compliance.
| Original language | English |
|---|---|
| Journal | Economics Bulletin |
| Volume | 10 |
| Issue number | 1 |
| State | Published - 2004 |
| Externally published | Yes |