DISCUSSION PAPER SERIES - Turning a "Blind Eye"? Compliance with Minimum Wage Standards and Employment

DISCUSSION PAPER SERIES

IZA DP No. 14456

Turning a “Blind Eye”?
Compliance with Minimum Wage
Standards and Employment

Andrea Garnero
Claudio Lucifora

JUNE 2021

DISCUSSION PAPER SERIES

IZA DP No. 14456

Turning a “Blind Eye”?
Compliance with Minimum Wage
Standards and Employment

Andrea Garnero
OECD, European Commission JRC, Université libre de Bruxelles and IZA
Claudio Lucifora
Department of Economics and Finance, Università Cattolica and IZA

JUNE 2021

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IZA DP No. 14456                                                                                                                     JUNE 2021

            ABSTRACT
            Turning a “Blind Eye”?
            Compliance with Minimum Wage
            Standards and Employment*
            Turning a “blind eye” to non-compliance with minimum wage standards is sometimes
            presented as a pragmatic way to accommodate higher wages while not harming
            employment opportunities for workers employed in marginal firms. In this paper, we model
            firms’ wage and employment decisions, and show that there may be a trade-off between
            non-compliance and employment. The main prediction of the model are empirically tested
            using data from the Italian labour force survey. We find evidence of a positive employment
            non-compliance effect, though elasticities are smaller than typically thought as employers
            internalize the expected costs of non-compliance. We also show that employment effects
            are larger at low levels of non-compliance (when the risk of being referred to court is very
            low). The implications for policy and the role of regulators in monitoring and sanctioning
            non-compliance are discussed.

            JEL Classification:               J31, J52, J83
            Keywords:                         collective bargaining, sectoral minimum wages, compliance

            Corresponding author:
            Claudio Lucifora
            Department of Economics and Finance
            Università Cattolica
            Largo Gemelli 1
            20123 Milan
            Italy
            E-mail: claudio.lucifora@unicatt.it

            * We are grateful to Enrico Roletto for outstanding research assistance. Andrea Bassanini, Pierre Cahuc, Andrea
            Ichino, Pedro Martins, Carlo Menon, Daphne Nicolistas, Giovanni Pica, Giulio Piccirilli, Andrea Salvatori and Jonathan
            Thomas as well as two anonymous referees provided useful comments. We are also grateful to participants at the
            AIEL Conference and seminars held at Queen Mary University of London, University of Cagliari, Università Cattolica,
            Confindustria, the OECD and IAB. Claudio Lucifora acknowledges funding from the European Union (CoBExt action,
            grant VS/2016/0340) and Università Cattolica D.3.2. Strategic Project “Evidence Based Anti-Poverty Policies”. This
            study reflects only the authors’ views and should not be attributed to the OECD, the European Commission or any
            member country. The European Commission is not responsible for any use that may be made of the information that
            the study contains.

workers have the
right to a remuneration commensurate to the quantity and quality of their work and in any case
such as to ensure them and their families a free and dignified existence

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4.1 Data

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Baseline results

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Robustness tests

ad hoc

Review of Economics and
Statistics

Review of Economics and Statistics

                                                          The Economic Journal
                                                                             Journal of Labor
Economics

             German Economic Review

European Journal of Industrial Relations

              The Review of Economic Studies

                                                           The American Economic Review

                                     Quarterly Journal of Economics

                Journal of Political Economy

Economica

                  American Economic Journal: Applied Economics

                          Journal of Applied Econometrics

                                                                              British Journal of
Industrial Relations

                            IZA Journal of Labor Policy

                                          Journal of Economic Geography

                                                                           The Journal of Law &
Economics

                                               Review of Economics and Statistics

                  European Economic Review

                   European Economic Review

                                   Journal of Public Economics

                       CoBExT Working paper
                                                                   Journal of Labor Economics

               Negotiating Our Way Up. Collective Bargaining in a Changing World of Work

                                             International Labour Review

                       Labour Economics

Economic Policy.

                     Journal of Development Economics

                     Diritto delle Relazioni Industriali
                                                           Journal
of Labor Economics

Source

Main variables   Mean   Std. Dev.   Min   Max

         Controls

         Sector

         Region

Source

Note:

Note:

Note:

Note:

Note:

Note:

OLS   OLS (without zeros)

Note:

Panel A: Dummy

Panel B: Continuous

Panel A: Non-compliance dummy

Panel B: Non-compliance continuous

fL
    w

for any level