Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92326
Authors: 
Tonin, Mirco
Year of Publication: 
2013
Citation: 
[Journal:] IZA Journal of European Labor Studies [ISSN:] 2193-9012 [Publisher:] Springer [Place:] Heidelberg [Volume:] 2 [Year:] 2013 [Pages:] 1-18
Abstract: 
This paper contributes to the policy debate on minimum wage by highlighting its role in enforcing compliance with fiscal rules in economies where underreporting of earnings is widespread. First, I propose a simple model exploring the interaction between the minimum wage and underreporting of earnings. Then, I provide supportive evidence by documenting 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. The analysis presented in this paper suggests that a high spike in the wage distribution at the minimum wage level is, in some contexts, a fiscal issue, more than a labour market issue, and therefore it would be incorrect to consider a high spike as an indication of a binding minimum wage. Also, differentiating the minimum wage along dimensions related to earnings (e.g. education, sector, or occupation) makes sense from an enforcement perspective.
Subjects: 
minimum wage
spike
underreporting
tax evasion
JEL: 
J38
H26
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/2.0/
Document Type: 
Article

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