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

Leif Danziger

No 4408, IZA Discussion Papers from IZA Network @ LISER

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: competitive labor markets; noncompliance; minimum wage; working hours; welfare (search for similar items in EconPapers)
JEL-codes: J38 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2009-09
New Economics Papers: this item is included in nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published - published in: Labour Economics, 2009, 16 (6), 625-630

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Related works:
Journal Article: Noncompliance and the effects of the minimum wage on hours and welfare in competitive labor markets (2009)
Working Paper: Noncompliance and the Effects of the Minimum Wage on Hours and Welfare in Competitive Labor Markets (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp4408

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