According to economic theory, individuals make choices based on their preferences, beliefs, and budget constraints. Does the same reasoning apply to people’s choices in the domain of public policy? Moreover, if so, can we change whether they support or reject a policy by confronting their beliefs and by changing their budget constraints? Our study approaches both questions using the case of increasing the minimum wage to $15 an hour in Quebec.
We administered an online survey-experiment to 2,255 Quebeckers whose demographic characteristics were mainly representative of the general population. We collected their opinions on whether the hourly minimum wage should be equal to $15 (it was $10.75 at the time of the survey). The survey inquired if the individual respondent believed that he (she) or her family will directly benefit from the increase. We then elicited respondents’ knowledge of specific facts about the Quebec economy and their beliefs about possible consequences of raising the minimum wage. We also measured their social preferences using a modified dictator game, as well as their values using a series of questions about attitudes to redistribution, unemployed individuals, and perceptions of whether effort drives success (as opposed to luck or other factors). At the end of the survey, we administered an economic literacy test and measured respondents’ reasoning abilities using the Cognitive Reasoning Test and a numeracy test.
We then provided all respondents with the factual information about the current minimum hourly wage (in absolute terms and relative to the average hourly wage) and the proportion of workers who earn the minimum wage. Next, we randomly assigned participants to one of seven groups. All seven groups received the factual information that we described above. The first group did not receive any other information. The remaining six groups received information about hypothetical consequences of raising the minimum wage in addition to the factual information. Out of these six groups that received the hypothetical scenarios, the first three groups received one hypothetical scenario each about a possible loss of employment (10%, 30%, or 50%, respectively). The remaining three groups received one hypothetical scenario each about a possible increase in prices (5-10%, 15-20%, and 25-30%, respectively). After respondents read the provided factual information and hypothetical scenarios (if they had one), we asked them again whether the minimum wage should be raised.
Losses of employment can be thought of as a cost of the minimum wage increase directly to workers who earn the minimum wage. Price increases can be thought of as a cost of the minimum wage increase directly to the respondents. Therefore, we treat responses after the information treatment as a willingness to pay for the policy, either as costs to others or as direct costs to self.
We report several findings:
We conclude that the demand for the increase in the minimum wage is consistent with individuals’ preferences and beliefs. Moreover, as the price of the policy increases, the demand for the policy drops. This drop is most prominent among those whose beliefs differed from the hypothetical scenarios that we provided. Respondents appear to be more sensitive to the costs of the policy regarding job losses than regarding prices. Given that we elicited stated rather than revealed willingness-to-pay, it is possible that respondents understate their willingness to pay the costs regarding losses of jobs, and overstate their willingness to pay the costs regarding higher prices.
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