Fair Enough? Minimum Wage Effects on Fair Wages

Koenig, Johannes; Neyse, Levent; Schroeder, Carsten

doi:10.2139/ssrn.3409913

Cited by 5 publications

(7 citation statements)

References 35 publications

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“…Early theoretical work in development focused heavily on labor market imperfections. 11 However, there has been no direct empirical documentation of downward wage rigidity in this setting to date. There is a broader empirical literature on the functioning of labor markets in developing countries.…”

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confidence: 99%

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Nominal Wage Rigidity in Village Labor Markets

Kaur

2019

American Economic Review

171

118

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This paper develops a new approach to test for downward wage rigidity by examining transitory shocks to labor demand (i.e., rainfall) across 600 Indian districts. Nominal wages rise during positive shocks but do not fall during droughts. In addition, transitory positive shocks generate ratcheting: after they have dissipated, wages do not adjust back down. Ratcheting reduces employment by 9 percent, indicating that rigidities distort employment levels. Inflation, which is unaffected by local rainfall, enables downward real wage adjustments—offering causal evidence for its labor market effects. Surveys suggest that individuals believe nominal wage cuts are unfair and lead to effort reductions. (JEL E24, E31, J23, J31, O15, O18, R23)

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confidence: 99%

“…Of course, survey responses may not reflect actions under real stakes. To the extent that these responses reflect fairness norms, they do not provide insight on the micro-foundations for these norms 11. For example,Lewis (1954);Eckaus (1955); Rosenstein-Rodan (1956);Leibenstein (1957);Shapiro and Stiglitz (1984);Singh, Squire, and Strauss (1986).…”

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confidence: 99%

Nominal Wage Rigidity in Village Labor Markets

Kaur

2019

American Economic Review

171

118

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“…Without employers adjusting the wage offer distribution accordingly, the relative hiring rate of the long-term unemployed would decline, which we do not find. In addition, Koenig et al (2019) found evidence against an adjustment of workers' reservation wages toward the new minimum wage. 8 We conducted telephone interviews with employees from four regional Chambers of Industry and Commerce in East Germany, where the minimum wage affected firms quite strongly.…”

Section: Discussionmentioning

confidence: 99%

“…For an employer, using the exemption means paying workers differently, perhaps even for comparable tasks. Such differences in pay can discourage the newly hired workers (Falk et al 2006; Koenig et al 2019). This can lower effort, threaten internal peace within the firm, or lead some unemployed job seekers to refuse to work for less than the minimum wage.…”

Section: Discussionmentioning

confidence: 99%

“…“Unfair” wages below minimum might then lead to reduced effort, especially when other workers in the same firm earn more for comparable tasks. Experimental evidence shows that these considerations can be quite important (Falk, Fehr, and Zehnder 2006; Koenig, Neyse, and Schroeder 2019). As a result, few firms may consider subminimum wages a profitable strategy.…”

Section: Theorymentioning

confidence: 99%

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Evaluating the Minimum-Wage Exemption of the Long-Term Unemployed in Germany

Umkehrer¹,

Berge

2020

ILR Review

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The authors evaluate the exemption of long-term unemployed job seekers from Germany’s national minimum wage. Using linked survey and administrative micro data, they rely on a regression discontinuity design to identify the effects of the policy by comparing hiring rates, employment stability, and entry wages around the administrative threshold between short-term and long-term unemployment. They find that the exemption is very rarely used and that the minimum wage binds irrespective of past unemployment duration. While the minimum wage led to a relative rise in entry wages for the long-term unemployed compared to the short-term unemployed, the authors do not detect a relative deterioration in their employment prospects.

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Spillover effects of the minimum wage introduction based on horizontal fairness: A lab experiment

Demirtaş

2022

Manage Decis Econ

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This paper analyses how a minimum wage introduction affects reservation wages and wage offers based on horizontal fairness with a lab experiment with two experimental settings. The first experimental setting was applied to two types of workers (low or high skills), whereas there are one type of workers in the second setting but two types of sectors, covered and uncovered sectors, depending on whether the minimum wage is enforced. Results show the minimum wage introduction generates spillover effects on the high‐skilled workers' reservation wages and wage offers, whereas there is no evidence of the spillover effect on the uncovered sector.

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Fair Enough? Minimum Wage Effects on Fair Wages

Cited by 5 publications

References 35 publications

Nominal Wage Rigidity in Village Labor Markets

Nominal Wage Rigidity in Village Labor Markets

Evaluating the Minimum-Wage Exemption of the Long-Term Unemployed in Germany

Spillover effects of the minimum wage introduction based on horizontal fairness: A lab experiment

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