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Cover of: Inspections and Compliance: Enforcement of the Minimum-Wage Law
Alexandra Fedorets, Mattis Beckmannshagen

Inspections and Compliance: Enforcement of the Minimum-Wage Law

Section: Articles
Volume 77 (2021) / Issue 1, pp. 1-58 (58)
Published 26.02.2021
DOI 10.1628/fa-2021-0001
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  • 10.1628/fa-2021-0001
This paper is the first to empirically study the relationship between spatial distributions of labor market inspections and noncompliance with Germany's minimum-wage law. Combining novel administrative data with large-scale longitudinal survey data, we document that the inspection probability is higher in regions with higher noncompliance. This implies risk-based allocation of the inspection efforts and, hence, its endogeneity. Using fixed effects and an instrumental-variable approach, we show that higher inspection efforts have a limited effect on compliance. Based on a theoretical framework and international evidence, we discuss challenges for law enforcement, the political importance of compliance, and possible improvement measures.