Government Contracting and Wage Compliance

ABSTRACT Research Question This study investigates the relationship between government contracting and wage compliance in the United States. Research Findings Firms that 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 behavior through regulatory oversight embedded in contractual obligations. It highlights how FAR‐driven governance mechanisms lead to improved labor 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 labor‐related violations such as wage theft.