A Theory of Compliance with Minimum Wage Law

Simplice Asongu and Mohamed Jellal ()

No 14_020, AAYE Policy Research Working Paper Series from Association of African Young Economists

Abstract: Purpose – In this paper, we introduce firm heterogeneity in the context of a model of non-compliance with minimum wage legislation. Design/methodology/approach – Theoretical modeling under government compliance policy and wages & employment under non compliance. Findings – The introduction of heterogeneity in the ease with which firms can be monitored for non compliance allows us to show that non-compliance will persist in sectors which are relatively difficult to monitor, despite the government implementing non stochastic monitoring. Moreover, we show that the incentive not to comply is an increasing function of the level of the minimum wage and increasing function of the gap between the minimum wage and the competitive wage rate. Originality/value – We have shown why non compliance persists in certain sectors of activity despite frequent inspection by government agencies.

Keywords: Minimum wage legislation; informal sector in LDCs (search for similar items in EconPapers)
JEL-codes: H26 O17 (search for similar items in EconPapers)
Pages: 09 pages
Date: 2014-09, Revised 2014-11
New Economics Papers: this item is included in nep-iue and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: A Theory of Compliance with Minimum Wage Law (2014)
Working Paper: A Theory of Compliance with Minimum Wage Law (2014)
Working Paper: A theory of compliance with minimum wage law (2014)
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