Minimum Wages and Workers' "Motivation": An approach using an economic experiment (Japanese)

Tomoharu Mori

Discussion Papers (Japanese) from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This paper investigates the effect of minimum wages on workers' effort levels (motivation) using an economic experiment conducted in a laboratory. Under the gift-exchange theory, if firms pay higher wages, workers exert more effort. Vice versa, if firms pay lower wages, workers exert less effort. Minimum wages affect the judgment as to whether the wages being paid are high or low. In general, wages near the minimum appear unattractive. However, it is possible that the same level of wage will appear attractive if minimum wages did not exist. Moreover, the existence of minimum wages affects unemployment. Under larger unemployment, the effort level of workers is higher since being employed is more valuable. The result of the experiment shows the two following points. First, in the case where all workers are hired and unemployment does not exist, minimum wages decrease effort level (conditioned by wage). The reason is that minimum wages increase the "reference wage" and the higher wage is needed to induce the same effort level. Second, in the case where workers can be rejected from being hired by a firm and are unemployed, minimum wages does not change (and sometimes increase) the effort level. The result implies that minimum wages do not change the worst case (being unemployed) and do not change reference wages. In addition, the increase in unemployment due to minimum wages may increase effort levels.

Pages: 23 pages
Date: 2013-03
New Economics Papers: this item is included in nep-hrm
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Persistent link: https://EconPapers.repec.org/RePEc:eti:rdpsjp:13012

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