Abstract

In this paper, we explore the incentives for firms to comply with the National Living Wage/National Minimum Wage (NLW/NMW) in the United Kingdom. We document the penalties that firms are subject to both in theory and in practice if caught underpaying the NLW/NMW; estimate their current upper bound rate of detection; and show that even if detection rates increased significantly they would need to go hand-in-hand with higher financial penalties to provide firms with a hard, economic incentive to comply with the law.