Government Contracting and Wage Compliance

Research Question: This study investigates the relationship between government contracting and wage compliance in the United States. Research Findings: Firms which are awarded government contracts experience a significant improvement in wage compliance, evidenced by a reduction in wage theft. This relationship is at least partly driven by enhancements in contractors’ internal control environment. Cross-sectional analysis suggests that this relation is more pronounced when there is greater scope for government monitoring of its suppliers. Academic Implications: This research contributes to the literature on corporate governance and corporate misconduct by highlighting the role of government as a unique stakeholder that can effectively influence contractor behaviour through regulatory oversight embedded in contractual obligations. It highlights how FAR-driven governance mechanisms lead to improved labour outcomes, such as wage compliance. Policy Implications: For policymakers, the findings emphasize the value of public procurement as a tool for advancing corporate accountability. Formalized oversight embedded in government–supplier relationships offer a distinct avenue for strengthening external governance and mitigating labour-related violations such as wage theft.