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Spillover Effects of Minimum Wages: Theory and Experimental Evidence

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  • 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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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp3576.pdf
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    References listed on IDEAS

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    1. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section..
    2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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    4. Lawrence F. Katz & Alan B. Krueger, 1992. "The Effect of the Minimum Wage on the Fast-Food Industry," ILR Review, Cornell University, ILR School, vol. 46(1), pages 6-21, October.
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    7. 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, July.
    8. Dittrich, Marcus & Knabe, Andreas, 2010. "Wage and employment effects of non-binding minimum wages," Discussion Papers 2010/15, Free University Berlin, School of Business & Economics.
    9. Armin Falk & Ernst Fehr & Christian Zehnder, "undated". "The Behavioral Effects of Minimum Wages," IEW - Working Papers 247, Institute for Empirical Research in Economics - University of Zurich.
    10. 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 257-273, May.
    11. David Neumark & DMark Schweitzer & DaWilliam Wascher, 2004. "Minimum Wage Effects throughout the Wage Distribution," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
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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. Köhler, Katrin & Pagel, Beatrice & Rau, Holger A., 2015. "How worker participation affects reciprocity under minimum remuneration policies: Experimental evidence," Center for European, Governance and Economic Development Research Discussion Papers 267, University of Goettingen, Department of Economics.
    3. Dittrich, Marcus & Städter, Silvio, 2015. "Moral hazard and bargaining over incentive contracts," Research in Economics, Elsevier, vol. 69(1), pages 75-85.
    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. Battisti, Michele, 2017. "High wage workers and high wage peers," Labour Economics, Elsevier, vol. 46(C), pages 47-63.

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    More about this item

    Keywords

    minimum wage; bargaining; Kalai-Smorodinsky solution; labor market experiments;
    All these keywords.

    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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