Understanding “Wage Theft”: Evasion and avoidance responses to minimum wage increases

• Published in: Labour economics Vol. 79; p. 102285
• Main Authors: Clemens, Jeffrey, Strain, Michael R.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.12.2022
• Subjects: Compliance, Noncompliance, Enforcement; Minimum wage; Subminimum wage; Compliance, Noncompliance, Enforcement; Minimum wage; Subminimum wage
• ISSN: 0927-5371; 1879-1034
• DOI: 10.1016/j.labeco.2022.102285

•We find that subminimum wage payment rises following minimum wage increases, in particular for young workers.•Increases in estimated underpayment average between 12 and 17 percent of wage gains.•Compliance appears to rise when firms and workers have had more time to adjust.•Enforcement regimes also appear to influence compliance patterns.•Noncompliance is a quantitatively important reality in the low-wage labor market. This paper presents strong evidence that minimum wage increases lead to a greater prevalence of subminimum wage payment. Using the Current Population Survey, we estimate that increases in measured underpayment following minimum wage increases average between 12 and 17 percent of realized wage gains. Our baseline analyses focus on workers ages 16 to 25, while additional analyses consider workers ages 16 to 65. In addition, we find that firms and workers comply to a far greater degree with minimum wage increases that are forecastable, modest, and regular than with minimum wage increases enacted through new legislation. We also find evidence that states’ enforcement regimes influence the compliance patterns we observe. We interpret these findings as evidence that while minimum wage compliance is the norm, noncompliance is an important, economically nuanced reality in the low-wage labor market.