Paper 1213 Underreporting of Earnings and the Minimum Wage Spike
Author: Mirco Tonin (University of Southampton)
This paper documents a positive correlation within European labour markets between the proportion of full-time employees with earnings on the minimum wage and the extent of under-reporting of earnings in the economy. Using a simple model of a competitive labour market, Murco shows how this correlation can emerge as a result of the common dependence of both quantities on the strength of enforcement of fiscal regulation. This suggests that a high spike in the wage distribution at the minimum wage level is, in some contexts, as fiscal issue, more than a labour market issues and this should be taken into consideration when comparing labour market policies or outcomes across countries.