Turning a "Blind Eye"? Compliance with Minimum Wage Standards and Employment

44 Pages Posted: 19 Jun 2021

See all articles by Andrea Garnero

Andrea Garnero

Paris School of Economics (PSE); Organization for Economic Co-Operation and Development (OECD); Université Libre de Bruxelles (ULB)

Claudio Lucifora

Università Cattolica del Sacro Cuore di Milano ; IZA Institute of Labor Economics

Abstract

Turning a "blind eye" to non-compliance with minimum wage standards is sometimes presented as a pragmatic way to accommodate higher wages while not harming employment opportunities for workers employed in marginal firms. In this paper, we model firms' wage and employment decisions, and show that there may be a trade-off between non-compliance and employment. The main prediction of the model are empirically tested using data from the Italian labour force survey. We find evidence of a positive employment non-compliance effect, though elasticities are smaller than typically thought as employers internalize the expected costs of non-compliance. We also show that employment effects are larger at low levels of non-compliance (when the risk of being referred to court is very low). The implications for policy and the role of regulators in monitoring and sanctioning non-compliance are discussed.

JEL Classification: collective, bargaining, sectoral, minimum, wages, compliance

Suggested Citation

Garnero, Andrea and Lucifora, Claudio, Turning a "Blind Eye"? Compliance with Minimum Wage Standards and Employment. IZA Discussion Paper No. 14456, Available at SSRN: https://ssrn.com/abstract=3870187

Andrea Garnero

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Organization for Economic Co-Operation and Development (OECD) ( email )

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France

Université Libre de Bruxelles (ULB) ( email )

CP 132 Av FD Roosevelt 50
Brussels, Brussels 1050
Belgium

Claudio Lucifora (Contact Author)

Università Cattolica del Sacro Cuore di Milano ( email )

Department of Economics and Finance
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20123 Milano
Italy
+39 027 234 2525 (Phone)
+39 027 234 2781 (Fax)

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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