Written by Vanessa Wu
Abstract: Will a minimum wage affect worker productivity? If there does exist an effect, will it be the same for high-wage and low-wage workers? In this paper, I develop a theoretical framework to demonstrate how the effect of a minimum wage on worker productivity can be transmitted via two channels: (a) workers adjust their perceived fair wage to the new minimum wage; (b) group norms for effort change under the new minimum wage. Moreover, the framework also considers whether the minimum wage is actively introduced or passively complied with by the firm, which reveals the intention behind the action and interacts with the above two channels to influence worker productivity. To test the model’s predictions, I propose a laboratory experiment where “workers” perform real effort tasks and choose their effort level under varying wage schemes.