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- Title
Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum Wage Laws.
- Authors
Basu, Arnab K.; Chau, Nancy H.; Kanbur, Ravi
- Abstract
In many countries, non-compliance with minimum wage legislation is widespread and authorities may be seen as having turned a blind eye to legislation they have themselves passed. We show that turning a blind eye can indeed be an equilibrium phenomenon with ex post credibility, in a model of minimum wage policy with imperfect competition, imperfect enforcement and imperfect commitment. Since credible enforcement requires costly ex post transfer of income from employers to workers, a government concerned only with efficiency but not with distribution is shown, paradoxically, to be unable to credibly elicit efficiency improvements via a minimum wage reform.
- Subjects
MINIMUM wage laws; TRANSFER payments; INCOME maintenance programs; WAGE differentials; BASIC income; CORRUPT practices in law enforcement; INCOME inequality; PUBLIC administration; GOVERNMENT policy
- Publication
Economic Journal, 2010, Vol 120, Issue 543, p244
- ISSN
0013-0133
- Publication type
Article
- DOI
10.1111/j.1468-0297.2009.02298.x