Enforcement and compliance of labor market regulations

This dissertation explores enforcement of and compliance with the minimum wage and overtime provisions of the Fair Labor Standards Act (FLSA).; The first chapter studies an innovative regulatory system in the US garment industry. The approach places an embargo on goods produced in violation of the minimum wage law. Since such embargos are costly to manufacturers, they have an incentive to enforce compliance among their sub-contractors. This regulatory approach substantially reduced minimum wage violations among employers covered by the program.; The second and third chapters examine compliance with the overtime provision of the FLSA which requires that workers be paid time and a half for any hours beyond forty that they work in a week. Standard theory predicts that the overtime provision has no effect because firms and workers contract for the efficient number of hours and adjust the straight-time wage to generate the contracted weekly salary. However, the rate of violation is very high, and many workers work exactly forty hours. These facts suggest that the law is binding. We develop and estimate two models. In the first there is a direct administrative cost of compliance which the firm weighs against the risk and cost of punishment for noncompliance and the cost of avoiding the law by limiting workers to forty hours per week. Maximum likelihood estimation of the model reveals that there is evidence of the existence of a cost of compliance. The estimation also reveals that working in metropolitan areas significantly increases the cost of noncompliance.; In the second model, a risk-neutral firm contracts with a risk-averse worker. In the absence of regulation, the worker should receive a fixed salary, and hours should vary in response to demand shocks. However, in the presence of an overtime provision, hours variation is reduced, and there is a spike in hours at forty. Firms weigh the cost of this inefficient contract against the risk and cost of punishment for noncompliance. Firms subject to greater demand fluctuations and employing more risk-averse workers should be more likely to violation the overtime provision. The empirical results are generally supportive of these predictions.