Do US Firms Have an Incentive To Comply With the FLSA and the NLRA?

42 Pages Posted: 9 Jul 2021 Last revised: 24 Aug 2021

See all articles by Anna Stansbury

Anna Stansbury

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Peterson Institute for International Economics; IZA

Date Written: June 21, 2021

Abstract

To what extent do US firms have an incentive to comply with the Fair Labor Standards Act (FLSA) and the National Labor Relations Act (NLRA)? I examine this question through a simple comparison of the expected costs of noncompliance (in terms of legal sanctions) to the profits firms can earn through noncompliance. In the case of the FLSA minimum wage and overtime provisions, typical willful violators are required to pay back wages owed and in some cases additional penalties, if detected by the Department of Labor (DOL). Based on available data on the penalties levied, a typical firm would need to expect a chance of at least 78–88 percent that its violation would be detected in order to have an incentive to comply with the FLSA. In practice, the probability of detection many firms can expect to face is likely much lower than this. In the case of the NLRA, a firm that fires a worker illegally is required to reinstate the worker with back pay if the violation is detected. Based on empirical estimates of the effect of unionization on firm profits, a typical firm may have an incentive to fire a worker illegally for union activities if this illegal firing would reduce the likelihood of unionization at the firm by as little as 0.15–2 percent. These analyses illustrate that neither the FLSA nor the NLRA penalty and enforcement regimes create sufficient incentive to comply for many firms. In this context, the substantial evidence of minimum wage and overtime violations, and of illegal employer behavior toward unions, is not surprising.

Keywords: Minimum Wage, Labor Standards, Labor Law, Union Policy, Industrial Relations

JEL Classification: J38, J58, K31

Suggested Citation

Stansbury, Anna, Do US Firms Have an Incentive To Comply With the FLSA and the NLRA? (June 21, 2021). Peterson Institute for International Economics Working Paper No. 21-9, Available at SSRN: https://ssrn.com/abstract=3874221 or http://dx.doi.org/10.2139/ssrn.3874221

Anna Stansbury (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

IZA ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
228
Abstract Views
1,027
Rank
246,235
PlumX Metrics