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Minimum Wage Non-compliance: The Role of Co-determination

SOEPpapers 1199, 35 S.

Laszlo Goerke, Markus Pannenberg

2023

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Abstract

We analyse in what way co-determination affects non-compliance with the German minimum wage, which was introduced in 2015. The Works Constitution Act (WCA), the law regulating co-determination at the plant level, provides works councils with indirect means to ensure compliance with the statutory minimum wage. Based on this legal situation, our theoretical model predicts that non-compliance is less likely in co-determined firms because works councils enhance the enforcement of the law. The economic correlates of co-determination, such as higher productivity and wages, affect non-compliance in opposite directions. The empirical analysis, using data from the German Socio-economic Panel (SOEP) for the years 2016 and 2019, demonstrates that non-compliance occurs less often for employees in co-determined establishments, while there is no impact on the difference between the minimum wage and the amount, which was actually paid. Therefore, co-determination helps to secure the payment of minimum wages.



JEL-Classification: J30;J53;K31;K42;M54
Keywords: Co-determination, Labour Law, Minimum Wages, Socio-Economic Panel (SOEP), Non-compliance, Works Councils
Frei zugängliche Version: (econstor)
http://hdl.handle.net/10419/280354

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