Volume 30, Number 2 (Spring) 1995
Lott, Jr., John R., and Russell D. Roberts. 1995. "The Expected Penalty for Committing a Crime: An Analysis of Minimum Wage Violations." Journal of Human Resources 30(2):397-408.
Several papers have noted and sought to explain the paradox of minimum wage law compliance. Compliance rates are high even though the penalty for violating the law is allegedly less than the underpayment to workers. By comparison, we show that the actual penalty exceeds the underpayment. We combine our estimates of the costs of violating the law with estimates of the probability of apprehension to arrive at the expected cost of violating the law. In contrast with previous work, we find that the expected costs are sufficiently high to make compliance rational.
John R. Lott Jr. is the John M. Olin Visiting Assistant Professor at the Graduate School of Business, University of Chicago and the Carl D. Covitz Assistant Professor at The Wharton School, University of Pennsylvania. Russell D. Roberts is the Director of the Management Center, John M. Olin School of Business, Washington University in St. Louis. The authors would like to thank Michael Block and Gertrud Fremling for their helpful comments. Lott would like to acknowledge support from the Center for the Study of the Economy and the State at the University of Chicago and as the Carl D. Covitz Assistant Professor at The Wharton School. The data used in this article can be obtained beginning in August 1995 through August 1998 from Professor John R. Lott Jr., The Graduate School of Business, University of Chicago, Chicago, Illinois 60637.
© 2002 by the Board of Regents of the University of Wisconsin System
US ISSN 0022-166X