The Effect of Minimum Wage Increases on Employers’ Wage Offers and Employee Effort

• In Event: DSFI no. 2

Abstract

Prior research uses the gift-exchange model to study employers’ wage decisions and employee effort in incomplete contracting environments. The gift-exchange model is founded on the norm of reciprocity, in which perceived intentions play an important role. Increases to the minimum wage effectively force the hand of employers offering less than the new minimum wage to increase wages. As such, the perceptions of the kindness of these wage increases is questionable. Even for employers already paying above the new minimum wage, perceptions of workers may shift following the increase. We experimentally test the response of workers to wage offers following an increase in the minimum wage, relative to the response of workers for which that new minimum wage has always been in place. Consistent with our predictions, we find that, although wage levels are equivalent in both cases, effort levels are lower when workers experienced the increase.

Authors

• Michael John Majerczyk, Georgia State University

• William Douglas Brink, Miami University

• Jason Kuang, Georgia Institute of Technology