IDEAS home Printed from https://ideas.repec.org/a/spr/izaldv/v4y2015i1p1-2010.1186-s40175-015-0039-1.html
   My bibliography  Save this article

Partial minimum wage compliance

Author

Listed:
  • Haroon Bhorat
  • Ravi Kanbur
  • Benjamin Stanwix

Abstract

In many developing countries, a significant portion of the wage distribution is found below the legal minimum wage. In order to fully understand the nature of this non-compliance, we need to compare the counterfactual wage distribution without the minimum wage law to the current wage distribution. Such a comparison could reveal partial compliance, where employers raise wages some of the way to the minimum wage, to balance out the benefits of non-compliance with the costs and penalties to the extent that they depend on the gap between the legal minimum wage and the wage actually paid. This paper presents a simple model of such partial compliance and uses its predictions to structure an empirical investigation of the impact of introducing a minimum wage law for agricultural workers in South Africa. We find that partial compliance is indeed taking place and further, the lowest wages are being raised disproportionately, consistent with the predictions of the model. JEL codes: J23, J25, J31, J32, J38, J43 Copyright Bhorat et al. 2015

Suggested Citation

  • Haroon Bhorat & Ravi Kanbur & Benjamin Stanwix, 2015. "Partial minimum wage compliance," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-20, December.
    • Handle: RePEc:spr:izaldv:v:4:y:2015:i:1:p:1-20:10.1186/s40175-015-0039-1
    DOI: 10.1186/s40175-015-0039-1
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1186/s40175-015-0039-1
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1186/s40175-015-0039-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Haroon BHORAT & Ravi KANBUR & Natasha MAYET, 2012. "Minimum wage violation in South Africa," International Labour Review, International Labour Organization, vol. 151(3), pages 277-287, September.
    2. 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.
    3. 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.
    4. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    5. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-766, May.
    6. 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.
    7. David Neumark & Mark E. Schweitzer & William L. Wascher, 1999. "The effects of minimum wages throughout the wage distribution," Working Papers (Old Series) 9919, Federal Reserve Bank of Cleveland.
    8. 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.
    9. Haroon Bhorat & Ravi Kanbur & Benjamin Stanwix, 2014. "Estimating the Impact of Minimum Wages on Employment, Wages, and Non-Wage Benefits: The Case of Agriculture in South Africa," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(5), pages 1402-1419.
    10. 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.
    11. David S. Lee, 1999. "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 977-1023.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Haroon Bhorat & Ravi Kanbur & Benjamin Stanwix & Amy Thornton, 2021. "Measuring Multi‐Dimensional Labour Law Violation with an Application to South Africa," British Journal of Industrial Relations, London School of Economics, vol. 59(3), pages 928-961, September.
    2. Badaoui, Eliane & Walsh, Frank, 2022. "Productivity, non-compliance and the minimum wage," Journal of Development Economics, Elsevier, vol. 155(C).
    3. Fontagné, Lionel & Limardi, Michela, 2024. "The Generalized System of Preferences and NGO activism," Journal of Development Economics, Elsevier, vol. 166(C).
    4. Karolina GORAUS‐TAŃSKA & Piotr LEWANDOWSKI, 2019. "Minimum wage violation in central and eastern Europe," International Labour Review, International Labour Organization, vol. 158(2), pages 297-336, June.
    5. Aimal Khan & Dr. Anwar Shah & Dr. Ghulam Mustafa, 2023. "Minimum Wage Compliance In Pakistan: A Demographic Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 12(3), pages 159-168.
    6. Wannaphong Durongkaveroj, 2022. "Does the minimum wage improve the welfare of workers? Evidence from the 2013 minimum wage reform in Thailand," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 36(2), pages 52-70, November.
    7. Ham, Andrés, 2018. "The Consequences of Legal Minimum Wages in Honduras," World Development, Elsevier, vol. 102(C), pages 135-157.
    8. Haroo Bhorat & Ravi Kanbur & Benjamin Stanwix, 2019. "Compliance with labor laws in developing countries," IZA World of Labor, Institute of Labor Economics (IZA), pages 1-80, June.
    9. Pérez Pérez, Jorge, 2020. "The minimum wage in formal and informal sectors: Evidence from an inflation shock," World Development, Elsevier, vol. 133(C).
    10. Stansbury, Anna, 2024. "Incentives to Comply with the Minimum Wage in the US and UK," IZA Discussion Papers 16882, Institute of Labor Economics (IZA).
    11. Mario Bossler & Ursula Jaenichen & Simeon Schächtele, 2022. "How effective are enforcement measures for compliance with the minimum wage? Evidence from Germany," Economic and Industrial Democracy, Department of Economic History, Uppsala University, Sweden, vol. 43(2), pages 943-971, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrés Ham, 2015. "Minimum wage violations in Honduras," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-19, December.
    2. ArnabK. Basu & NancyH. Chau & Ravi Kanbur, 2010. "Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws," Economic Journal, Royal Economic Society, vol. 120(543), pages 244-269, March.
    3. Haroon Bhorat & Ravi Kanbur & Natasha Mayet, 2013. "The impact of sectoral minimum wage laws on employment, wages, and hours of work in South Africa," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-27, December.
    4. Marlies Piek & Dieter von Fintel, 2020. "Sectoral minimum wages in South Africa: Disemployment by firm size and trade exposure," Development Southern Africa, Taylor & Francis Journals, vol. 37(3), pages 462-482, May.
    5. Mansoor, Kashif & O'Neill, Donal, 2021. "Minimum wage compliance and household welfare: An analysis of over 1500 minimum wages in India," World Development, Elsevier, vol. 147(C).
    6. 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.
    7. Andrea Garnero & Claudio Lucifora, 2022. "Turning a ‘Blind Eye’? Compliance with Minimum Wage Standards and Employment," Economica, London School of Economics and Political Science, vol. 89(356), pages 884-907, October.
    8. Danziger, Leif, 2009. "Noncompliance and the effects of the minimum wage on hours and welfare in competitive labor markets," Labour Economics, Elsevier, vol. 16(6), pages 625-630, December.
    9. Clemens, Jeffrey & Strain, Michael R., 2022. "Understanding “Wage Theft”: Evasion and avoidance responses to minimum wage increases," Labour Economics, Elsevier, vol. 79(C).
    10. Belman, Dale. & Wolfson, Paul J., 2016. "What does the minimum wage do in developing countries? : A review of studies and methodologies," ILO Working Papers 994893283402676, International Labour Organization.
    11. Badaoui, Eliane & Walsh, Frank, 2022. "Productivity, non-compliance and the minimum wage," Journal of Development Economics, Elsevier, vol. 155(C).
    12. Mansoor, Kashif & O'Neill, Donal, 2020. "Minimum Wage Compliance and Household Welfare: An Analysis of over 1500 Minimum Wages," IZA Discussion Papers 13298, Institute of Labor Economics (IZA).
    13. Danziger, Leif, 2010. "Endogenous monopsony and the perverse effect of the minimum wage in small firms," Labour Economics, Elsevier, vol. 17(1), pages 224-229, January.
    14. Sotomayor, Orlando J., 2021. "Can the minimum wage reduce poverty and inequality in the developing world? Evidence from Brazil," World Development, Elsevier, vol. 138(C).
    15. repec:ebl:ecbull:v:10:y:2007:i:4:p:1-7 is not listed on IDEAS
    16. 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.
    17. repec:ebl:ecbull:v:10:y:2004:i:9:p:1-7 is not listed on IDEAS
    18. Andrea Garnero & Claudio Lucifora, 2020. "Turning A Blind Eye? Compliance To Minimum Wages And Employment," DISCE - Working Papers del Dipartimento di Economia e Finanza def085, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    19. Haroon Bhorat & Tara Caetano & Benjamin Jourdan & Ravi Kanbur & Christopher Rooney & Benjamin Stanwix & Ingrid Woolard, 2016. "Investigating the Feasibility of a National Minimum Wage for South Africa," Working Papers 201601, University of Cape Town, Development Policy Research Unit.
    20. Marlies Piek & Dieter von Fintel & Johann F. Kirsten, 2020. "Separating employment effects into job destruction and job creation: Evidence from a large minimum wage increase in the agricultural sector using administrative tax data," WIDER Working Paper Series wp-2020-51, World Institute for Development Economic Research (UNU-WIDER).
    21. Meghan J. Millea & Jon P. Rezek & Brian Shoup & Joshua Pitts, 2017. "Minimum Wages in a Segmented Labor Market: Evidence from South Africa," Journal of Labor Research, Springer, vol. 38(3), pages 335-359, September.
    22. Ham, Andrés, 2018. "The Consequences of Legal Minimum Wages in Honduras," World Development, Elsevier, vol. 102(C), pages 135-157.

    More about this item

    Keywords

    Minimum Wages; South Africa; Compliance; Enforcement; Agriculture; Index of Minimum Wage Violation; Wage;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:izaldv:v:4:y:2015:i:1:p:1-20:10.1186/s40175-015-0039-1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.