Noncompliance and the Effects of the Minimum Wage on Hours and Welfare in Competitive Labor Markets

25 Pages Posted: 29 Sep 2009

See all articles by Leif Danziger

Leif Danziger

Ben-Gurion University of the Negev - Department of Economics; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2009

Abstract

This paper shows that increases in the minimum wage rate can have ambiguous effects on the working hours and welfare of employed workers in competitive labor markets. The reason is that employers may not comply with the minimum wage legislation and instead pay a lower subminimum wage rate. If workers are risk neutral, we prove that working hours and welfare are invariant to the minimum wage rate. If workers are risk averse and imprudent (which is the empirically likely case), then working hours decrease with the minimum wage rate, while their welfare may increase.

Keywords: noncompliance, minimum wage, working hours, welfare, competitive labor markets

JEL Classification: J38

Suggested Citation

Danziger, Leif, Noncompliance and the Effects of the Minimum Wage on Hours and Welfare in Competitive Labor Markets (September 2009). CESifo Working Paper Series No. 2786, Available at SSRN: https://ssrn.com/abstract=1479456

Leif Danziger (Contact Author)

Ben-Gurion University of the Negev - Department of Economics ( email )

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HOME PAGE: http://www.econ.bgu.ac.il/facultym/danziger/main.htm

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