X.Wang/Joumol of Economic Psychology 33 (2012)951-962 955 er wages are d on the condition that the minimum wage is common knowledge to both sides,the following fair rms.In the UNINFORMED as in the INFORMED condition We predict the folowing changes for different groups:First.more will 加st the M W level rather than higher:Secon t have paid wages hig mation acc ving bias o心ar水ompcte nomrno nhempope tend tmvetthrorrotr istein.Wa 19 6)d d tha the choices of comparison references by the negotiators for salary contracts are influenced by their self-serving bias in fair e firm an argument to adjust thei Since workers are not aware of the minimum wage in UNINFORMED.they will not induce changes in faimess perception more likely to reduce th The impact of minimum wageon employment is positiveor negative(Falket.p.1359).If the minimum wage has a strong e oh impact on re n wages,it is possibl ms to reduce employment.The theoretical argument fo 2003)According to this model.dominant the h firm ns are gener nt to raise the es to attrac wages are imposed,the ow have to pay all of their low-wag workers the ld have to rai e to pay th s to their workforce as well. 2.4.The questionngirecern will determine whether Type 2 firms will remain at the level they offered under NO condition, or reduce their offer or raise their offer. As evident in Falk et al. (2006), many workers frequently increased their reservation wage above the MW level after the introduction of a MW. This implies an increase of their perceived fair wage. Expecting the workers’ concern for fairness and entitlement, many Type 1 firms will increase their offers beyond the minimum level. Similarly, Type 2 firms are less likely to reduce their offers to the minimum. However, it is possible that Type 2 firms who used to pay higher wages are affected by the reference effect of the minimum wage standard and reduce their offers to a level closer to the minimum. Brandts and Charness (2004) found that when a MW is imposed, the highest wage was chosen only half as frequently in the mini￾mum-wage condition as in the no-minimum condition, even though the average wage was higher in the minimum-wage condition. The higher the MW reference is, the higher the reservation wages are expected, and the higher the offered wages should be. Therefore, based on the condition that the minimum wage is common knowledge to both sides, the following fair￾ness hypotheses will hold. Hypothesis 1. Minimum wage policy will generally increase wage levels. Firms’ offers, reservation wages, and contract wages will be higher in MW condition than in the NO condition. Hypothesis 2. Firms’ offers, workers’ reservation wages, and contract wages will be higher in the 220 MW condition than in the 170 MW condition. When workers are unaware of the MW policy, we predict different behavior on the side of the firms. In the UNINFORMED condition, the firms’ consideration of the effects of minimum wage on workers’ fairness perception is no longer as important as in the INFORMED condition. We predict the following changes for different groups: First, more Type 1 firms will increase their offer to just the MW level rather than higher; Second, more Type 2 firms that have paid wages higher than the MW are likely to reduce their offers to a wage level closer or equal to the current MW. This prediction is based on how fairness con￾cern is affected by information access and on how fairness is driven by self-serving bias. Previous studies have shown that fairness concern is given more weight under complete information than under incom￾plete information (Babcock, Loewenstein, Issacharoff, et al., 1995; Babcock, Loewenstein, & Wang, 1995; Güth & Damme, 1998). Furthermore, people tend to arrive at judgments of what is fair or right that are biased in favor of their own self-inter￾ests (Babcock, Wang, & Loewenstein, 1996), especially under ambiguous conditions (Babcock, Loewenstein, Issacharoff, et al., 1995; Babcock, Loewenstein, & Wang, 1995; Haisley & Weber, 2010). The study of Babcock et al. (1996) directly showed that the choices of comparison references by the negotiators for salary contracts are influenced by their self-serving bias in fair￾ness perceptions. Self-serving bias implies that, when the MW reference provides to the firm an argument to adjust their offer to a lower level than before, they are inclined to perceive the lower offer to be fairer. Since workers are not aware of the minimum wage in UNINFORMED, they will not induce changes in fairness perceptions from the minimum wage. In contrast, workers reservations wages will increase in INFORMED condition. The combination of the decisions by firms and workers will predict higher wages in INFORMED conditions. We arrive at the following hypothesis from above analysis. Hypothesis 3. When the minimum wage is common knowledge, firms’ offers and workers’ reservations are higher; and they will exceed the minimum level more frequently than when workers are not aware of the minimum wage. Hypothesis 4. Firms whose offers in the no-minimum-wage condition are higher than the minimum wage standard are more likely to reduce their offers toward the minimum level in the UNINFORMED condition than in the INFORMED condition. The impact of minimum wage on employment is positive or negative (Falk et al., 2006, p. 1359). If the minimum wage has a strong enough impact on reservation wages, it is possible for firms to reduce employment. The theoretical argument for non-negative impact of minimum wage on employment is the existence of monopsony in the labor market (Manning, 2003). According to this model, dominant employers in a particular labor market could actually increase their employment in response to minimum wage increases. Such firms are generally reluctant to raise their wages to attract new recruits be￾cause they have to pay the higher wage to their existing incumbent workforce to maintain internal equity. When minimum wages are imposed, they no longer face such constraint because they now have to pay all of their low-wage workers the same minimum wage. Therefore, they are no longer reluctant to hire workers that they otherwise would not have hired be￾cause they would have to raise wages to hire such workers and they would have to pay those higher wages to their existing workforce as well. 2.4. The questionnaire At the end of each experimental session, we asked the subjects to answer a questionnaire to complement our experimen￾tal analysis. The questions are mostly concerned with the subjects’ strategic concerns and fairness perceptions. X. Wang / Journal of Economic Psychology 33 (2012) 951–962 955