The employer perspective on wage law non‐compliance: State of the field and a framework for new understanding

• Published date: 01 October 2023
• Author: Stephen Clibborn,Sally Hanna‐Osborne
• Date: 01 October 2023
• DOI: http://doi.org/10.1111/irel.12333

Industrial Relations. 2023;62:411–438. wileyonlinelibrary.com/journal/irel 411

The University of Sydney, Sydney, New South

Wales, Australia

Correspondence

Stephen Clibborn, The University of Sydney,

Sydney, NSW, Australia.

Email: stephen.clibborn@sydney.edu.au

Funding information

Australian Research Council, Grant/Award

Number: DE200100243

Abstract

This article offers the first systematic review of empirical

research addressing the question of why employers under-

pay their employees, from the perspective of employers

themselves – a perspective largely missing from scholarly

examination of wage law non-compliance. We conducted a

comprehensive search of the vast peer-reviewed literature on

the topic, identifying studies which collected and analyzed

primary data from employers regarding why they breached

wage laws. A review of these studies identified four broad

types of explanation offered by employers relating to finan-

cial viability, perceived consequences of non-compliance,

ethical and normative rationalization, and the role of exter-

nal actors. We propose a research agenda and theoretical

framework based on the key empirical, methodological

and theoretical gaps which remain in understanding why

employers underpay their employees, and discuss how this

agenda can inform policy interventions designed to amelio-

rate the problem.

ORIGINAL ARTICLE

The employer perspective on wage law

non-compliance: State of the field and a framework

for new understanding

Stephen Clibborn | Sally Hanna-Osborne

DOI: 10.1111/irel.12333

Received: 29 August 2022 Accepted: 15 March 2023

INTRODUCTION

Employer non-compliance with wage laws is a widespread and persistent problem in many

developed countries. The rise and extent of the problem has been well documented (e.g.,

Amengual, 2014; Bernhardt et al., 2009; Clark & Herman, 2017; Clibborn & Wright, 2018;

Vosko,2006). It is estimated that every year workers are underpaid more than $40 billion in

the United States (Meixell & Eisenbrey, 2014), £3.1 billion in the United Kingdom (Clark &

Herman,2017) and $1.35 billion in Australia (PwC,2020). Many low-wage workers are denied

money to which they are legally entitled. Compliant employers also suffer as they compete with

non-compliant businesses, while social insurance schemes are deprived of funds that would

otherwise have been levied on wages paid. More broadly, non-compliance undermines the integ-

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits

use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or

adaptations are made.

© 2023 The Authors. Industrial Relations published by Wiley Periodicals LLC on behalf of Regents of the University of California (RUC).

CLIBBORN and HANNA-OSBORNE

412

rity of regulatory systems designed to protect workers from exploitation and provide fair and

competitive market conditions for businesses.

Yet there remain gaps in understanding why non-compliance with wage laws occurs. Public

discourse on the question tends to be polarized and reductive, often aligned with union or

employer interests, suggesting that employers are either unscrupulous wage thieves or honest

victims of overly complex regulations. A vast scholarly literature amassed on the topic in recent

decades sheds some light on the question of why employers breach wage laws, as we identify in

the analysis to follow. However, most of this body of research fails to engage with the perspectives

of those responsible for underpaying workers – employers themselves. Instead, apart from the

scholarship systematically analyzed in this article, including notably the excellent United

Kingdom-based scholarship of Paul Edwards, Monder Ram, Trevor Jones and colleagues upon

which we build, empirical research has chiefly focused on mapping characteristics of workers and

industries at highest risk of non-compliance and examining contributing contextual factors, such

as union decline, migration policy and underresourced state enforcement institutions. While such

insights help to understand the overall problem, they do not account for employers' motivations

and actions, including why some employers comply while others do not. Without incorporating

the employer perspective, the ability to identify the correct policy levers for curbing widespread

illegal practice is limited.

Edwards, Ram, Jones and colleagues' studies of migrant-owned businesses in the United

Kingdom have made the most significant empirical and theoretical contributions to this field to

date and we heed their call for further research, including into “non-migrant firms beyond the

‘ethnic economy’” (Ram etal.,2020, 869). We begin to answer this call, taking stock of extant

knowledge and setting out a roadmap for future research.

The purpose of this article, then, is twofold. First, we critically review existing literature on

employer non-compliance with wage laws, including the results of a systematic review of studies

based on primary data from employers, highlighting their insights and limitations in explaining

employer non-compliance. Second, based on the limitations and gaps identified in the review, we

propose a research agenda and theoretical framework to advance knowledge on the drivers of

non-compliance and to strengthen state and civil society responses to the issue.

PRIOR RESEARCH

Extant literature engaging with the phenomenon of employer non-compliance with wage laws

has three dominant, often overlapping, foci: labor markets, institutions and business structure.

These concentrate strongly on institutions and actors other than employers themselves, relating

to workers' vulnerability to underpayment and other mistreatment at work; on policy and regula-

tory institutions facilitating that vulnerability as well as state enforcement policies and practices;

and on the contributions of certain business structures to non-compliance. Each of these is now

described and critically reviewed in turn.

Labor market

Much of the extant research has framed employer non-compliance as a labor market – or more

specifically, a labor supply side – phenomenon. The emphasis has been on vulnerability of

groups of workers to underpayment because of severe lack of power in the employment rela-

tionship.Studies demonstrate that, for temporary migrants in particular, workers' vulnerability

to non-compliance derives from lack of information about their employment rights (Alexander

& Prasad,2014; Yaniv,1994), inability to negotiate legal wages and reluctance to enforce their

rights, often out of fear of employer retaliation including consequent deportation (Fussell,2011;