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Minimum wage noncompliance and the sub-minimum wage rate

Author

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  • Joachim Rosenmüller

    (IMW, University of Bielefeld, Germany)

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.

Suggested Citation

  • Joachim Rosenmüller, 2004. "Minimum wage noncompliance and the sub-minimum wage rate," Economics Bulletin, AccessEcon, vol. 10(9), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-04j30002
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    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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