Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws

ArnabK. Basu, NancyH. Chau and Ravi Kanbur

Economic Journal, 2010, vol. 120, issue 543, 244-269

Abstract: In many countries, non-compliance with minimum wage legislation is widespread and authorities may be seen as having turned a blind eye to legislation they have themselves passed. We show that turning a blind eye can indeed be an equilibrium phenomenon with "ex post" credibility, in a model of minimum wage policy with imperfect competition, imperfect enforcement and imperfect commitment. Since credible enforcement requires costly "ex post" transfer of income from employers to workers, a government concerned only with efficiency but not with distribution is shown, paradoxically, to be unable to credibly elicit efficiency improvements via a minimum wage reform. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Date: 2010
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Related works:
Working Paper: Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws (2007)
Working Paper: Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws (2005)
Working Paper: Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws (2005)
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