This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Behavioral Effects of Minimum Wages

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Armin Falk
Ernst Fehr
Christian Zehnder

Additional information is available for the following registered author(s):

Abstract

The prevailing labor market models assume that minimum wages do not affect the labor supply schedule. We challenge this view in this paper by showing experimentally that minimum wages have significant and lasting effects on subjects’ reservation wages. The temporary introduction of a minimum wage leads to a rise in subjects’ reservation wages which persists even after the minimum wage has been removed. Firms are therefore forced to pay higher wages after the removal of the minimum wage than before its introduction. As a consequence, the employment effects of removing the minimum wage are significantly smaller than are the effects of its introduction. The impact of minimum wages on reservation wages may also explain the anomalously low utilization of subminimum wages if employers are given the opportunity of paying less than a minimum wage previously introduced. It may further explain why employers often increase workers' wages after an increase in the minimum wage by an amount exceeding that necessary for compliance with the higher minimum. At a more general level, our results suggest that economic policy may affect people’s behavior by shaping the perception of what is a fair transaction and by creating entitlement effects.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.iew.unizh.ch/wp/iewwp247.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Institute for Empirical Research in Economics - IEW in its series IEW - Working Papers with number iewwp247.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation:
Date of revision:
Handle: RePEc:zur:iewwpx:247

Contact details of provider:

For technical questions regarding this item, or to correct its listing, contact: (Hanna Britt).

Related research
Keywords: Minimum wages; labor market; monopsony; fairness; reservation wages; entitlement;

Other versions of this item:

Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Aleksander Berentsen & Gabriele Camera & C hristopher W aller, 2005. "The Distribution Of Money Balances And The Nonneutrality Of Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 465-487, 05. [Downloadable!] (restricted)
    Other versions:
  2. Bruno S. Frey & Christine Benesch & Alois Stutzer, 2005. "Does Watching TV Make Us Happy?," CREMA Working Paper Series 2005-15, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
    Other versions:
  3. Fehr, Ernst & Kremhelmer, Susanne & Schmidt, Klaus M., 2005. "Fairness and the Optimal Allocation of Ownership Rights," CEPR Discussion Papers 5369, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. V. Bhaskar & Ted To, 1996. "Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition," Labor and Demography 9603001, EconWPA, revised 21 May 1996. [Downloadable!]
    Other versions:
  5. Alois Stutzer & Lukas Kienast, 2004. "Demokratische Beteiligung und Staatsausgaben: Die Auswirkungen des Frauenstimmrechts," CREMA Working Paper Series 2004-26, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
    Other versions:
  6. Lalive, Rafael & van Ours, Jan C. & Zweimueller, Josef, 2004. "How Changes in Financial Incentives Affect the Duration of Unemployment," IZA Discussion Papers 1363, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Alois Stutzer & Bruno S. Frey, 2004. "Making International Organizations More Democratic," CREMA Working Paper Series 2004-28, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
    Other versions:
  8. David Neumark & William Wascher, 1992. "Employment effects of minimum and subminimum wages: Panel data on state minimum wage laws," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 46(1), pages 55-81, October.
  9. Blount, Sally, 1995. "When Social Outcomes Aren't Fair: The Effect of Causal Attributions on Preferences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(2), pages 131-144, August. [Downloadable!] (restricted)
  10. Aleksander Berentsen & Gabriele Camera, 2004. "Money, Credit, and Banking," 2004 Meeting Papers 473, Society for Economic Dynamics.
    Other versions:
  11. Lawrence F. Katz & Alan B. Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," NBER Working Papers 3997, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Francesco Audrino & Enrico De Giorgi, . "Beta Regimes for the Yield Curve," IEW - Working Papers iewwp244, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  13. Jordi Brandts & Gary Charness, 2004. "Do Labour Market Conditions Affect Gift Exchange? Some Experimental Evidence," Economic Journal, Royal Economic Society, vol. 114(497), pages 684-708, 07. [Downloadable!] (restricted)
  14. Max Gruetter, 2005. "Returns to Foreign Education: Yet Another But Different Cross Country Analysis," IZA Discussion Papers 1615, Institute for the Study of Labor (IZA). [Downloadable!]
  15. De Giorgi, Enrico & Post, Thierry, 2008. "Second-Order Stochastic Dominance, Reward-Risk Portfolio Selection, and the CAPM," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(02), pages 525-546, June. [Downloadable!]
  16. Reto Foellmi & Josef Zweimüller, . "Income Distribution and Demand-induced Innovations," IEW - Working Papers iewwp212, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  17. Gruetter, Max & Lalive, Rafael, 2004. "The Importance of Firms in Wage Determination," IZA Discussion Papers 1367, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  18. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July. [Downloadable!] (restricted)
    Other versions:
  19. Armin Falk & Ernst Fehr & Urs Fischbacher, . "On the Nature of Fair Behavior," IEW - Working Papers iewwp017, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  20. James B. Rebitzer & Lowell J. Taylor, 1991. "The Consequences of Minimum Wage Laws: Some New Theoretical Ideas," NBER Working Papers 3877, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  21. Bruno S. Frey & Alois Stutzer, 2004. "Economic Consequences of Mispredicting Utility," CREMA Working Paper Series 2005-04, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
    Other versions:
  22. Blanchflower, David G & Oswald, Andrew J, 1990. " The Wage Curve," Scandinavian Journal of Economics, Blackwell Publishing, vol. 92(2), pages 215-35.
    Other versions:
    • Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
    • David G. Blanchflower & Andrew J. Oswald, 1990. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    • David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x.
  23. Fehr, Ernst & Fischbacher, Urs & Kosfeld, Michael, 2005. "Neuroeconomic Foundation of Trust and Social Preferences," CEPR Discussion Papers 5127, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  24. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March. [Downloadable!] (restricted)
  25. Christian Ewerhart & Nuno Cassola & Steen Ejerskov & Natacha Valla, . "Optimal Allotment Policy in Central Bank Open Market Operations," IEW - Working Papers iewwp201, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  26. Katz, L.F. & Krueger, A.B, 1991. "The Effect Of The New Minimum Wage Law In A Low-Wage Labor Market," Harvard Institute of Economic Research Working Papers 1544, Harvard - Institute of Economic Research.
    Other versions:
  27. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1149-1187, November. [Downloadable!] (restricted)
    Other versions:
  28. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
  29. Armin Falk & Urs Fischbacher, . "A Theory of Reciprocity," IEW - Working Papers iewwp006, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  30. Dan Ariely & George Loewenstein & Drazen Prelec, 2003. ""Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 73-105, February. [Downloadable!] (restricted)
  31. Manning, Alan, 1995. "How Do We Know That Real Wages Are Too High?," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1111-25, November. [Downloadable!] (restricted)
    Other versions:
  32. Olivier Jean Blanchard & Lawrence Katz, 1999. "Wage Dynamics: Reconciling Theory and Evidence," NBER Working Papers 6924, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  33. Fehr, Ernst & Schmidt, Klaus M., 2001. "Theories of Fairness and Reciprocity," Discussion Papers in Economics 14, University of Munich, Department of Economics. [Downloadable!]
  34. Tania Singer & Ernst Fehr, 2005. "The Neuroeconomics of Mind Reading and Empathy," IZA Discussion Papers 1647, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  35. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May. [Downloadable!] (restricted)
    Other versions:
  36. Peter Woehrmann & Willi Semmler & Martin Lettau, . "Nonparametric Estimation of the Time-varying Sharpe Ratio in Dynamic Asset Pricing Models," IEW - Working Papers iewwp225, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  37. Falk, Armin & Zweimüller, Josef, 2005. "Unemployment and Right-Wing Extremist Crime," CEPR Discussion Papers 4997, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  38. Bruno S. Frey & Alois Stutzer, . "The Role of Direct Democracy and Federalism in Local Power," IEW - Working Papers iewwp209, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  39. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2004. "Calculating Tragedy: Assessing the Costs of Terrorism," CREMA Working Paper Series 2004-23, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
    Other versions:
  40. Pavlo R. Blavatskyy, . "A Stochastic Expected Utility Theory," IEW - Working Papers iewwp231, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  41. Armin Falk & Ernst Fehr & Christian Zehnder, 2005. "The Behavioral Effects of Minimum Wages," IZA Discussion Papers 1625, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  42. Martin Brown & Christian Zehnder, 2005. "Credit Registries, Relationship Banking and Loan Repayment," IEW - Working Papers iewwp240, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  43. repec:fth:prinin:298 is not listed on IDEAS
  44. Richard B. Freeman & Wayne B. Gray & Casey Ichniowski, 1981. "Low-Cost Student Labor: The Use and Effects of the Subminimum Wage Provisions for Full-time Students," NBER Working Papers 0765, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  45. Blanchard, Olivier & Katz, Lawrence F, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter. [Downloadable!] (restricted)
    Other versions:
  46. Rafael Lalive & Josef Zweimüller, . "Does Parental Leave Affect Fertility and Return-to-Work? Evidence from a ”True Natural Experiment”," IEW - Working Papers iewwp242, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  47. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  48. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-93, September. [Downloadable!] (restricted)
    Other versions:
  49. Bruno S. Frey, 2005. "Knight Fever – Towards an Economics of Awards," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  50. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fehr, Ernst & Singer, Tania, 2005. "The Neuroconomics of Mind Reading and Empathy," CEPR Discussion Papers 5128, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Dirk Engelmann & Dorothea Kübler, 2008. "Do Legal Standards Affect Ethical Concerns of Consumers?," SFB 649 Discussion Papers SFB649DP2008-008, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
    Other versions:
  3. König, Marion & Möller, Joachim, 2007. "Mindestlohneffekte des Entsendegesetzes? : eine Mikrodatenanalyse für die deutsche Bauwirtschaft (Minimum wage effects of the worker posting law? : a micro data analysis for the German construction s," IAB Discussion Paper 200730, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]. [Downloadable!]
    Other versions:
  4. Mariano Bosch & Marco Manacorda, 2008. "Minimum Wages and Earnings Inequality in Urban Mexico. Revisiting the Evidence," CEP Discussion Papers dp0880, Centre for Economic Performance, LSE. [Downloadable!]
  5. Markus Pannenberg, 2007. "Risk Aversion and Reservation Wages," SOEPpapers 23, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
  6. Sarah Brown & Karl Taylor, 2008. "Reservation Wages, Expected Wages and Labour Market Outcomes: Analysis of Individual Level Panel Data," Working Papers 2008008, The University of Sheffield, Department of Economics, revised Jul 2008. [Downloadable!]
  7. Falk, Armin & Fehr, Ernst & Zehnder, Christian, 2005. "The Behavioural Effects of Minimum Wages," CEPR Discussion Papers 5115, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Klaus M. Schmidt, 2009. "The Role of Experiments for the Development of Economic Theories," Discussion Papers 252, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  9. Fehr, Ernst & Fischbacher, Urs & Kosfeld, Michael, 2005. "Neuroeconomic Foundation of Trust and Social Preferences," CEPR Discussion Papers 5127, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  10. Armin Falk & David Huffman, 2006. "Studying Labor Market Institutions in the Lab: Minimum Wages, Employment Protection and Workfare," IZA Discussion Papers 2310, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  11. Moser, Christoph & Stähler, Nikolai, 2009. "Spillover effects of minimum wages in a two-sector search model," Discussion Paper Series 1: Economic Studies 2009,01, Deutsche Bundesbank, Research Centre. [Downloadable!]
  12. Roberto Galbiati & Pietro Vertova, 2006. "The Hidden Effect of Rules: Behavioural consequences of Obligations," Discussion Papers 18_2006, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
  13. Dohmen Thomas & Falk Armin & Huffman David & Sunde Uwe, 2008. "Homo Reciprocans: Survey Evidence on Behavioural Outcomes," Research Memoranda 007, Maastricht : ROA, Research Centre for Education and the Labour Market. [Downloadable!]
    Other versions:
  14. Herwig Immervoll, 2007. "Minimum Wages, Minimum Labour Costs and the Tax Treatment of Low-Wage Employment," IZA Discussion Papers 2555, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  15. Böckerman, Petri & Uusitalo, Roope, 2007. "Minimum wages and youth employment: Evidence from the Finnish retail trade sector," MPRA Paper 6113, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  16. Markus Pannenberg, 2007. "Risk Aversion and Reservation Wages," IZA Discussion Papers 2806, Institute for the Study of Labor (IZA). [Downloadable!]
Statistics
Access and download statistics

Did you know? You can use convenient plug-ins to search directly IDEAS from your browser.

This page was last updated on 2009-11-19.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.