Fairness, Minimum Wage Law, and Employee Benefits

Christine Jolls

Often employers will agree to pay their employees more than the minimum the employees would accept for performing the job in question. One reason for this behavior is that such "fair" treatment by employers may encourage better job performance by employees. In her contribution to the Symposium, Professor Christine Jolls examines some of the legal implications of this "fairness dynamic." Empirical evidence strongly supports the idea that some employers will offer to pay employees more than the minimum amount the employees would accept in order to induce them to exert more effort, and that employees respond in turn by working harder. Fairness behavior is of special relevance to employers when monitoring and punishment for inadequate performance would prove difficult Once the fairness dynamic described here is taken into account, the argument for the minimum wage requirement imposed by the Fair Labor Standards Act is undercut in situations where employees are relatively difficult to monitor, as fairness considerations will tend to drive the wage up regardless. This legal conclusion is a reminder that while behavioral law and economics may sometimes be more likely than traditional law and economics to support legal intervention, in other cases the opposite is true.

This article appears in the April 2002 Issue: Volume 77, Number 1