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Underreporting of Earnings and the Minimum Wage Spike

Mirco Tonin

No 5942, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper documents a positive correlation within European labour markets between the proportion of full-time employees with earnings on the minimum wage and the extent of underreporting of earnings in the economy. Using a simple model of a competitive labour market, I show how this correlation can emerge as a result of the common dependence of both quantities on the strength of enforcement of fiscal regulation. This suggests that a high spike in the wage distribution at the minimum wage level is, in some contexts, an issue of fiscal enforcement, more than a labour market issue.

Keywords: lighthouse effect; minimum wage; spike; underreporting (search for similar items in EconPapers)
JEL-codes: J38 H26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-iue, nep-lab and nep-lma
Date: 2011-08
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Published in: IZA Journal of European Labor Studies, 2013, 2:2

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