This article analyzes a minimum wage in a market with imperfect information and job search. It establishes that employment effects of a minimum wage do not generally indicate welfare effects. It shows that researchers interested in welfare consequences should ask two questions. First, is the existing minimum wage binding? Second, do some firms that would be bound by a new minimum wage presently experience labor shortages? If the answers to these questions are no and yes, respectively, this article supports the conclusion that a higher minimum wage is welfare improving, regardless of its effect on the unemployment rate.

This article explores a Census Bureau survey of the small business sector, the 1982 Characteristics of Business Owners survey, which contains information on both small businesses and the managers running them. A number of patterns are documented. For example, among small businesses of the same age, the probability that a business fails and the probability that a business is sold are both initially decreasing in the tenure of the manager at the business. Among businesses with managers who have the same tenure at their business, the probability that a business fails is decreasing in the age of the business.

We use unique data to analyze employer tax compliance with Unemployment Insurance (UI) provisions. The data indicate that employers may have underreported $728 million of UI taxes nationally in 1987 alone. To formally examine this noncompliance, a theoretical model of payroll tax evasion is developed showing that increasing payroll tax rates, among other things, likely increases noncompliance by risk-neutral firms. This prediction is empirically verified. The finding that UI tax evasion is systematically related to various firm characteristics suggests that UI audits may be effectively targeted by statistical profiles derived from our model, thereby improving compliance.