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Noncompliance Behavior of Risk-Averse Firms Under the Minimum Wage Law

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  • Yang-Ming Chang

    (Kansas State University)

Abstract

This article is concerned with the law evasion (reduced wages) and law avoidance (modified employment) aspects of noncompliance behavior by risk-averse firms under the minimum wage law. It demonstrates that the adverse disemployment effects of a legal minimum wage under the conventional "full compliance" assumption should be modified by an "employment effect" of noncompliance, although it is shown that risk-averse violating firms would employ less labor than they would if they were risk-neutral. Findings suggest that the most effective strategy for motivating risk-averse firms to comply with minimum wage laws is imposing stiffer penalty fees.

Suggested Citation

  • Yang-Ming Chang, 1992. "Noncompliance Behavior of Risk-Averse Firms Under the Minimum Wage Law," Public Finance Review, , vol. 20(3), pages 390-401, July.
    • Handle: RePEc:sae:pubfin:v:20:y:1992:i:3:p:390-401
    DOI: 10.1177/109114219202000307
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    References listed on IDEAS

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    5. Chang, Yang-Ming & Ehrlich, Isaac, 1985. "On the Economics of Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 84-91, February.
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    Cited by:

    1. Laszlo Goerke & Markus Pannenberg, 2023. "Minimum Wage Non-compliance: The Role of Co-determination," SOEPpapers on Multidisciplinary Panel Data Research 1199, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. גדעון יניב, 1999. "אי-ציות לחוק שכר מינימום והיקף ההעסקה האופטימאלי (באנגלית)," Working Papers 356, National Insurance Institute of Israel.
    3. Dinkelman, Taryn & Ranchhod, Vimal, 2012. "Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa," Journal of Development Economics, Elsevier, vol. 99(1), pages 27-45.
    4. repec:ebl:ecbull:v:10:y:2004:i:9:p:1-7 is not listed on IDEAS
    5. Chang, Yang-Ming & Huang, Biing-Wen & Chen, Yun-Ju, 2012. "Labor supply, income, and welfare of the farm household," Labour Economics, Elsevier, vol. 19(3), pages 427-437.
    6. Yang-Ming Chang & Bhavneet Walia, 2007. "Wage discrimination and partial compliance with the minimum wage law," Economics Bulletin, AccessEcon, vol. 10(4), pages 1-7.
    7. 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.
    8. repec:ebl:ecbull:v:10:y:2007:i:4:p:1-7 is not listed on IDEAS
    9. Yaniv, Gideon, 2006. "On the employment effect of noncompliance with the minimum wage law," International Review of Law and Economics, Elsevier, vol. 26(4), pages 557-564, December.

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