Minimum-Wage Enforcement and the Low-Wage Labor Market

Abstract

America’s low-wage workers have fared poorly during the past two decades. Since the late 1970s, the wages of workers at the tenth percentile of the wage distribution have declined in both absolute terms (adjusting for inflation) and relative to those of middle- and high-wage workers. This paper examines the influence of the enforcement of the minimum wage by the U.S. Department of Labor on the wages of the poorest workers. It concludes that enforcement can and does raise those wage levels for workers receiving subminimum wage, but that the Department faces several problems in ensuring that employers comply with the law. The resources of the Department’s enforcement arm have diminished over time, whether measured by inflation-adjusted budgets, the number of its investigators, or the number of enforcement actions it has taken. More importantly, the Department also has to work within a system that offers few deterrents to the minority of employers that is bent on violating the law and little compensation to workers who are denied the wages to which they are legally entitled. Recommendations for improving the enforcement of labor standards in low-wage labor markets include increasing penalties, plugging legal loopholes, providing incentives to employers to put enforcement pressure on their subcontractors and competitors, and making it easier for unions and other worker organizations to take collective action to help to enforce the minimum wage.