Productivity, non-compliance and the minimum wage

Many informal firms in developing countries would not be viable if they were to comply with the minimum wage law. This means authorities have an incentive turn a blind eye non-enforcement substantial share of firms. We also survey enforcement mechanisms for across and find that worker complaints are important element determining whether will inspected non-compliance or not. develop theoretical monopsony model which rationalises stylised facts we observe. For given wage, government can choose level penalties such employment fall any optimising firm, irrespective their productivity. Low productivity firm’s optimal choice unaffected by introduction wage. High so effects non-negative these