Turning a Blind Eye: Costly Enforcement, Credible Commitment and Minimum
نویسندگان
چکیده
In many countries, noncompliance with minimum wage legislation is widespread, and authorities may be seen as having turned a blind eye to a 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.
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