X.Wang/Joumol of Economic Psychology 33(2012)951-96 953 ges that are highe mayy y mak First.we m the findings of Falk et al.(2006)about th of minimum wage on wages under common kno haveimporTantpoigymptcaionSsncthmsaencndtoeicehepenohebhdigRlnRotwgCiwd may help explain why Du and Pan(2009)found different coverage levels of minimum wages for migrant workers and local In the ou mo comp ion esult Section 4 concludes the paper with discussions. 2.Experimental design 2.1.Experimental game and procedures The procedure for one and the other with a MW policy.Each game is played for of the 1 Each firm can make wage offers to any number of the three workers they are matched with.and has to pay the hire worke the same age The workers can t al.the 50 tion.If the worker rejects the offer w(i when the worker's res is higher than the firm's offer).he or she and ea er)this period.a is low and the fr according to the marginal revenue the worker about the feasible ctions and the were to review.Wes gav ware z-Tre 2.2.Treatments Our experiment design consists of between-subiect treatments and within-subiect treatments.The within treatment i similar to that of Falk e al.(2006)with each subject playing two games in eachs sion.The experim ent contains totally prevails in the NO treatment,while they have to obey MW1000 in the MW treatment and the value of MW differs cond part.of each experimental session.it contains twe treatment variables.t e level of binding minimum wstein, & Wang, 1995b). Firms who used to hold fair wages that are higher than the MW may thus reduce their payment to be equal or close to the minimum wage. Or when workers are not aware of the minimum wage, firms motivated by self-interest may try to take more share of the payoff. Our study makes the following contributions: First, we confirm the findings of Falk et al. (2006) about the general impact of minimum wage on wages under common knowledge conditions. Second, the design with different levels of minimum wage helps explain the impacts of different wage floors on the labor market. Third, our behavioral study of workers and firms under asymmetric information suggests different welfare results to workers when information is complete or not. This will have important policy implications. Since firms are inclined to reduce their payment to the binding minimum wage level when workers are not aware of the legal constraint, we can imagine that if the enforcement of the minimum wage laws is not strong enough, firms are likely to deviate from the legal request and pay wages lower than the minimum level. This may help explain why Du and Pan (2009) found different coverage levels of minimum wages for migrant workers and local urban workers. The most effective compliance mechanism might lie with empowering the workers with knowledge. In the following section, we present our experimental design and explain our hypotheses. Section 3 reports the results. Section 4 concludes the paper with discussions. 2. Experimental design 2.1. Experimental game and procedures The experimental game is similar to the one used by Falk et al. (2006). All subjects were undergraduate students at the Renmin University of China, allowing us to compare our results with their student pool of Switzerland. We first describe the procedure for one experimental session before we explain the design in the next section. Each session of the experiment has sixteen subjects, with twelve assigned as workers and four as firms.1 Each subject participated in only one session and is ran￾domly assigned as a firm or a worker throughout the session. Each session contains two games, one with no MW policy, and the other with a MW policy. Each game is played for fifteen periods (rounds). In each period of the experiment, three of the 12 workers are randomly matched to one of the four firms in the labor market, resulting to four matching groups in one session. Each firm can make wage offers to any number of the three workers they are matched with, and has to pay the hired workers the same wage. The workers can accept or reject the firm’s offer. Following the procedure of Falk et al., the decision is actually made by asking the workers to state their reservation wages after being presented with the firm’s revenue func￾tion. If the worker rejects the offer w (i.e., when the worker’s reservation wage is higher than the firm’s offer), he or she is unemployed and earns nothing in this period. If a worker accepts the offer (i.e., when the worker’s reservation wage is lower than the firm’s offer), a binding contract is formed and the worker receives a wage w, and the firms’ revenue increases according to the marginal revenue the worker generates. Each firm’s revenue is the same as shown in Table 1, and this is common knowledge to the workers. Firms’ profits are given by the total revenue minus the total wages. Each subject had to read a detailed set of instructions before the session started. Participants were given several questions about the feasible actions and the payoff consequences of different actions, and were then given answers to review. We also gave two practice periods before the actual session started. The exchange rate between experimental currency units (‘‘points’’) and real money was 450 Points = 1 RMB Yuan (US $0.15). The computerized experiment was programmed and conducted with the experimental software z-Tree (Fischbacher, 1999). At the end of the experiment, participants also answered a survey about their decisions and perceptions. A session lasted approximately one and half hours and subject earned on average 20 RMB Yuan (US $3). 2.2. Treatments Our experiment design consists of between-subject treatments and within-subject treatments. The within treatment is similar to that of Falk et al. (2006) with each subject playing two games in each session. The experiment contains totally 14 sessions that begin with 15 periods in game one without a minimum wage (NO) followed by 15 periods in game two with a minimum wage (MW). The range for permissible wage offers for firms is defined as follows: the constraint 0 6 w 6 1000 prevails in the NO treatment, while they have to obey MW 6 w 6 1000 in the MW treatment and the value of MW differs according to the between-subject design. The between-subject design affects only the MW part, or the second part, of each experimental session. It contains two treatment variables, the level of binding minimum wage and the knowledge of workers about the minimum wage, each tak￾ing two levels. This makes a two-by-two experimental design, four treatment conditions. The binding minimum wage in the MW condition is set to be either 170 or 220. The firms always have full knowledge about the minimum wage policy. The 1 We also conducted a pilot experiment with 24 subjects in a session as Falk et al. did, but that severely slowed down the random matching procedure during the experiment, probably due to our network capacity. X. Wang / Journal of Economic Psychology 33 (2012) 951–962 953