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Spillover Effects of Minimum Wages: Theory and Experimental Evidence

Author

Listed:
  • Marcus Dittrich
  • Andreas Knabe
  • Kristina Leipold

Abstract

We study the spillover effects of minimum wages in a laboratory experiment. In a bilateral firm-worker bargaining setting, we find that the introduction of a minimum wage exerts upward pressure on wages even if the minimum wage is too low to be a binding restriction. Furthermore, raising the minimum wage to a binding level increases the bargained wage above the new minimum wage level. While the Nash solution cannot explain the existence of spillover effects, the Kalai-Smorodinsky solution yields results that are qualitatively more in line with our experimental findings.

Suggested Citation

  • Marcus Dittrich & Andreas Knabe & Kristina Leipold, 2011. "Spillover Effects of Minimum Wages: Theory and Experimental Evidence," CESifo Working Paper Series 3576, CESifo.
    • Handle: RePEc:ces:ceswps:_3576
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    References listed on IDEAS

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    4. Marcus Dittrich & Andreas Knabe, 2010. "Wage and Employment Effects of Non-Binding Minimum Wages," CESifo Working Paper Series 3149, CESifo.
    5. David S. Lee, 1999. "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 977-1023.
    6. Amartya Sen, 1997. "Maximization and the Act of Choice," Econometrica, Econometric Society, vol. 65(4), pages 745-780, July.
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    8. Armin Falk & Ernst Fehr & Christian Zehnder, 2006. "Fairness Perceptions and Reservation Wages—the Behavioral Effects of Minimum Wage Laws," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1347-1381.
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    Citations

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    Cited by:

    1. Braun Helge & Döhrn Roland & Krause Michael & Micheli Martin & Schmidt Torsten, 2020. "Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 240(2-3), pages 351-386, April.
    2. Andrej Cupák & Pavel Ciaian & d'Artis Kancs, 2021. "Comparing the immigrant-native pay gap: A novel evidence from home and host countries," EERI Research Paper Series EERI RP 2021/05, Economics and Econometrics Research Institute (EERI), Brussels.
    3. Battisti, Michele, 2017. "High wage workers and high wage peers," Labour Economics, Elsevier, vol. 46(C), pages 47-63.
    4. Marcus Dittrich & Andreas Knabe & Kristina Leipold, 2014. "Gender Differences In Experimental Wage Negotiations," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 862-873, April.
    5. Braun, Helge & Döhrn, Roland & Krause, Michael & Micheli, Martin & Schmidt, Torsten, 2020. "Macroeconomic Long-Run Effects of the German Minimum Wage when Labor Markets are Frictional," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 351-386.
    6. Köhler, Katrin & Pagel, Beatrice & Rau, Holger A., 2015. "How worker participation affects reciprocity under minimum remuneration policies: Experimental evidence," University of Göttingen Working Papers in Economics 267, University of Goettingen, Department of Economics.
    7. Dittrich, Marcus & Städter, Silvio, 2015. "Moral hazard and bargaining over incentive contracts," Research in Economics, Elsevier, vol. 69(1), pages 75-85.

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    More about this item

    Keywords

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    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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