IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v73y2010i3p317-326.html
   My bibliography  Save this article

Minimum wage restrictions and employee effort in incomplete labor markets: An experimental investigation

Author

Listed:
  • Owens, Mark F.
  • Kagel, John H.

Abstract

A minimum wage raises average wages along with modest increases in employees' average effort levels, generating a Pareto improvement in social welfare. The minimum wage reduces effort in the neighborhood of the minimum, but has no systematic effect on effort levels at higher wages. As a consequence average effort increases modestly with a minimum wage as it raises average wages. Similar results are reported within groups, both when introducing and eliminating a minimum wage, although the within group effects of introducing a minimum wage are stronger than dropping it.

Suggested Citation

  • Owens, Mark F. & Kagel, John H., 2010. "Minimum wage restrictions and employee effort in incomplete labor markets: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 73(3), pages 317-326, March.
    • Handle: RePEc:eee:jeborg:v:73:y:2010:i:3:p:317-326
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167-2681(09)00285-6
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. 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 772-793, September.
    2. Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, vol. 72(3), pages 747-780, May.
    3. Heike Hennig-Schmidt & Bettina Rockenbach & Abdolkarim Sadrieh, 2010. "In Search Of Workers' Real Effort Reciprocity-A Field and a Laboratory Experiment," Journal of the European Economic Association, MIT Press, vol. 8(4), pages 817-837, June.
    4. 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.
    5. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    6. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    7. Carl M. Campbell III & Kunal S. Kamlani, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 759-789.
    8. 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.
    9. Ernst Fehr & Armin Falk, 1999. "Wage Rigidity in a Competitive Incomplete Contract Market," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 106-134, February.
    10. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
    11. Fehr, Ernst & Kirchler, Erich & Weichbold, Andreas & Gächter, Simon, 1998. "When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 324-351, April.
    12. repec:fth:prinin:298 is not listed on IDEAS
    13. 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.
    14. 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..
    15. Gary Charness, 2004. "Attribution and Reciprocity in an Experimental Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 665-688, July.
    16. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(4), pages 543-569.
    17. 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).
    18. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kocher, Martin G. & Luhan, Wolfgang J. & Sutter, Matthias, 2012. "Testing a forgotten aspect of Akerlof’s gift exchange hypothesis: Relational contracts with individual and uniform wages," Discussion Papers in Economics 12816, University of Munich, Department of Economics.
    2. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    3. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    4. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2007. "Gift Exchange in a Multi-Worker Firm," Economic Journal, Royal Economic Society, vol. 117(522), pages 1025-1050, July.
    5. Mark F. Owens, 2010. "Other-Regarding Preferences with Peer Workers in Labor Markets: An Experimental Investigation," Working Papers 201008, Middle Tennessee State University, Department of Economics and Finance.
    6. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    7. Simon Gächter & Daniele Nosenzo & Martin Sefton, 2012. "The Impact of Social Comparisons on Reciprocity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1346-1367, December.
    8. Gagnon, Nickolas & Noussair, C., 2016. "Does Reciprocity Persist Over Time?," Research Memorandum 033, Maastricht University, Graduate School of Business and Economics (GSBE).
    9. Simon Gächter & Esther Kaiser & Manfred Königstein, 2024. "Incentive contracts crowd out voluntary cooperation: Evidence from gift-exchange experiments," Discussion Papers 2024-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    10. Lin, Chung-Cheng & Yang, C.C., 2010. "Reciprocity and downward wage rigidity," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1155-1168, December.
    11. Marcus Dittrich & Andreas Knabe, 2010. "Wage and Employment Effects of Non-Binding Minimum Wages," CESifo Working Paper Series 3149, CESifo.
    12. Davies, Elwyn & Fafchamps, Marcel, 2021. "When no bad deed goes punished: Relational contracting in Ghana and the UK," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 714-737.
    13. Brink, William & Kuang, Xi (Jason) & Majerczyk, Michael, 2021. "The effects of minimum-wage increases on wage offers, wage premiums and employee effort under incomplete contracts," Accounting, Organizations and Society, Elsevier, vol. 89(C).
    14. Tetsuo Yamamori & Kazuyuki Iwata, 2023. "Wage claim detracts reciprocity in labor relations: experimental study of gift exchange games," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(3), pages 573-597, July.
    15. Gächter, Simon & Thöni, Christian, 2010. "Social comparison and performance: Experimental evidence on the fair wage-effort hypothesis," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 531-543, December.
    16. Maximiano, Sandra & Sloof, Randolph & Sonnemans, Joep, 2013. "Gift exchange and the separation of ownership and control," Games and Economic Behavior, Elsevier, vol. 77(1), pages 41-60.
    17. Currie, Janet & Lin, Wanchuan & Meng, Juanjuan, 2013. "Social networks and externalities from gift exchange: Evidence from a field experiment," Journal of Public Economics, Elsevier, vol. 107(C), pages 19-30.
    18. Danz, David & Engelmann, Dirk & Kübler, Dorothea, 2022. "Do legal standards affect ethical concerns of consumers?," European Economic Review, Elsevier, vol. 144(C).
    19. Elwyn Davies & Marcel Fafchamps, 2017. "When No Bad Deed Goes Punished: Relational Contracting in Ghana versus the UK," NBER Working Papers 23123, National Bureau of Economic Research, Inc.
    20. Alain Cohn & Ernst Fehr & Lorenz Goette, 2015. "Fair Wages and Effort Provision: Combining Evidence from a Choice Experiment and a Field Experiment," Management Science, INFORMS, vol. 61(8), pages 1777-1794, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:73:y:2010:i:3:p:317-326. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.