Work

Minimum wage non-compliance: the role of co-determination

Year: 2024

Type: article

Abstract: We analyse how co-determination is related to non-compliance with the German minimum wage, which was introduced in 2015. The Works Constitution Act (WCA), the law regulating co-determination at the plant level, provides works councils with indirect means to ensure compliance with the statutory minimum wage. Based on this legal situation, our theoretical model predicts that non-compliance is less likely in co-determined firms because works councils enhance the enforcement of the law. The economic correlates of co-determination, such as higher productivity and wages, affect non-compliance in opposite directions. The empirical analysis, using data from the German Socio-economic Panel (SOEP) for the years 2016 and 2019, demonstrates that non-compliance occurs less often for employees in co-determined establishments, while there is no correlation between non-compliance and the difference between the minimum wage and the wage actually paid.

Source: European Journal of Law and Economics

DOI: 10.1007/s10657-024-09811-1

Authors: Laszlo Goerke, Markus Pannenberg

Institutions: IZA - Institute of Labor Economics, Institute for Labour Law and Industrial Relations in the European Union, Universität Trier, Hochschule Bielefeld

Language: English

Topic: Labor market dynamics and wage inequality

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: Decent work and economic growth, Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,390