THE EXPECTED PENALTY FOR COMMITTING A CRIME - AN ANALYSIS OF MINIMUM-WAGE VIOLATIONS

Several papers have noted and sought to explain the paradox of minimum wage law compliance. Compliance rates are high even though the penalt y for violating the law is allegedly less than the underpayment to wor kers. By comparison, we show that the actual penalty exceeds the under payment. We combine our estimates of the costs of violating the law wi th estimates of the probability of apprehension to arrive at the expec ted cost of violating the law. In contrast with previous work, we find that the expected costs are sufficiently high to make compliance rati onal.