Do Legal Standards Affect Ethical Concerns of Consumers? An Experiment on Minimum Wages

Abstract

To address the impact of regulation on ethical concerns of consumers, we study the example of minimum wages. In our experimental market, consumers have monopsony power, firms set prices and wages, and workers are passive recipients of a wage payment. We find that the consumers exhibit considerable fairness towards the workers by buying from the firm with the higher price and the higher wage. We also find that consumers have a tendency to split their demand equally between firms, which is a simple strategy to provide both workers with a minimal payoff. Introducing a minimum wage in a mature market raises average wages despite its significant crowding-out effects on consumers' fairness concerns. Abolishing a minimum wage crowds in consumers' fairness concerns, but crowding in is not sufficient to avoid overall negative effects on the workers' wages