Working Paper: NBER ID: w1877
Authors: David E. Bloom; Gilles Grenier
Abstract: This paper sets out three simple models of firm behavior under minimum wage legislation. The key feature of these models is that they account for important aspects of the government's mechanism for monitoring and enforcing compliance with the minimum wage law. The major results of the paper are (1) that minimum wage legislation does not generally lead to upward movements along labor demand curves but rather, that it often leads to movements off, and to the left, of the labor demand curve; (2) that minimum wage legislation is likely to have a positive effect on the distribution of wages paid to workers who would earn less than the minimum in the absence of the legislation, but is not likely to bring all of those workers up to the minimum; and (3) that imposing additional penalties on second offenders promotes compliance by firms with no previous violations. The paper considers the implications of these results for empirical work on the adverse employment effects of minimum wage legislation andfor the design of government compliance mechanisms.
Keywords: minimum wage; firm behavior; compliance; labor economics
JEL Codes: J38; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum wage legislation (J38) | labor demand curves (J20) |
| minimum wage legislation (J38) | wages for workers earning less than the minimum (J38) |
| additional penalties on second offenders (K42) | compliance behavior (K40) |