Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/196665 
Year of Publication: 
2019
Series/Report no.: 
IZA Discussion Papers No. 12167
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
A holistic assessment of the labor market effects of minimum wage regulation requires understanding employer compliance. The economics literature has paid little attention to this issue. We investigate how minimum wage increases and the strength of enforcement regimes affect the prevalence of subminimum wage payments. We find strong evidence that higher minimum wages lead to a greater prevalence of subminimum wage payments. We consistently estimate that increases in measured underpayment following minimum wage increases average between 10 and 25 percent of realized wage gains. We interpret this as evidence that minimum wage evasion and avoidance are an important reality in the low-wage labor market. Finally, we find that enforcement regimes play an important role in shaping both baseline compliance rates and the response of compliance to increases in minimum wages.
Subjects: 
minimum wage
subminimum wage
compliance
noncompliance
enforcement
JEL: 
J08
J38
K42
Document Type: 
Working Paper

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