Spillover Effects of Minimum Wages: Theory and Experimental Evidence
27 Pages Posted: 21 Sep 2011
Date Written: September 21, 2011
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.
Keywords: minimum wage, bargaining, Kalai-Smorodinsky solution, labor market experiments
JEL Classification: C710, C910, J380
Suggested Citation: Suggested Citation