Image representing the balance between fair wages and the anchoring effect of minimum wage.

Is Minimum Wage Really a Fair Wage? The Hidden Anchoring Effect on Your Perception

Nico Varela in Business & Economy December 2025 • 4 min read.

"Discover how minimum wage subtly influences our judgment of fair compensation, impacting both individual perceptions and AI decision-making."

In an era where economic fairness is constantly debated, understanding the factors that influence our perception of a fair wage is crucial. Behavioral economics reveals that our decisions are often swayed by mental shortcuts known as judgmental heuristics. Among these, the anchoring effect—our tendency to rely heavily on the first piece of information we receive—plays a significant role.

Imagine negotiating a salary. Does the minimum wage factor into your expectations? Research suggests it does, acting as an 'anchor' that subtly shapes what we consider a just compensation. This phenomenon isn't limited to human perception; it extends to artificial intelligence, raising questions about bias in algorithms used for economic decision-making.

This article explores a groundbreaking study analyzing how minimum wage functions as an anchor in determining wage fairness, both for individuals and AI systems. By examining the implications of this anchoring effect, we can better understand the complexities of wage determination and strive for more equitable economic practices.

The Anchoring Effect: How Minimum Wage Warps Our Wage Expectations

Image representing the balance between fair wages and the anchoring effect of minimum wage.

The anchoring effect, a well-documented cognitive bias, describes our inclination to over-rely on the first piece of information offered (the 'anchor') when making decisions. This initial anchor influences subsequent judgments, even if it's irrelevant or known to be inaccurate. In the context of wages, the minimum wage can serve as this anchor, subtly shaping our perception of what constitutes a fair hourly rate.

Consider a scenario where you're asked to evaluate a fair wage for a specific job. If you're first presented with a minimum wage of $10 per hour, your judgment is likely to be influenced, even if the job's responsibilities and market value suggest a higher rate. This anchoring can lead to a downward adjustment in perceived fairness, potentially undervaluing the labor involved.

Anchoring in Everyday Life: The anchoring effect isn't limited to wage discussions. It influences purchasing decisions, negotiations, and even our perception of time.
Minimum Wage as a Policy Anchor: Government-mandated minimum wages create a powerful anchor, influencing not only individual wage expectations but also broader economic discourse.
The Controversy: The minimum wage remains a contentious topic. Understanding its psychological impact is vital for informed discussions about economic policy.

A recent study delved into the effects of minimum wage as an anchor by surveying participants on what they considered a fair wage for a 'materials worker,' one of the most common jobs in the U.S. The results revealed a clear trend: when presented with a specific minimum wage, participants adjusted their perception of a fair wage towards that anchor. This shift occurred even when the presented minimum wage was artificially high or low, showcasing the power of the anchoring effect.

The Broader Implications and Future Directions

The discovery of the minimum wage anchoring effect has profound implications for how we approach economic fairness. By recognizing that our perceptions are susceptible to bias, we can strive for more objective and equitable wage determinations. This understanding can also inform policy decisions related to minimum wage, ensuring that these measures promote fair compensation without unintended consequences.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2210.10585,

Title: The Minimum Wage As An Anchor: Effects On Determinations Of Fairness By Humans And Ai

Subject: econ.gn cs.cy q-fin.ec

Authors: Dario G. Soatto

Published: 10-10-2022

Everything You Need To Know

What is the anchoring effect and how does it relate to minimum wage?

The anchoring effect is a cognitive bias where individuals rely heavily on the first piece of information received when making decisions. In the context of wages, the minimum wage serves as an anchor. This initial figure subtly shapes our perception of what constitutes a fair hourly rate, potentially influencing our judgments about appropriate compensation levels for various jobs, even when the minimum wage might be irrelevant to the actual market value or job responsibilities.

How does minimum wage influence wage expectations in the context of salary negotiations?

Minimum wage can significantly influence salary negotiations by acting as an anchor. When individuals are exposed to a specific minimum wage, they tend to adjust their expectations of a fair wage towards that anchor. This can lead to a situation where individuals may perceive a lower wage as fair, even if the job's requirements and market value would normally warrant a higher salary. The anchoring effect in this scenario creates a bias in the negotiation process.

Can you explain the implications of the anchoring effect on AI and economic fairness?

The anchoring effect extends beyond human perception, impacting artificial intelligence. Algorithms used in economic decision-making, such as those for wage determination or job evaluation, can be influenced by the minimum wage as an anchor. If an AI is trained on data that includes minimum wage figures, it might develop biases in assessing fair compensation, potentially leading to inequitable outcomes. This highlights the need to understand and mitigate biases in AI to promote economic fairness.

What was the methodology and findings of the study on minimum wage as an anchor?

The study surveyed participants to determine their perception of a fair wage for a 'materials worker.' Participants were presented with a specific minimum wage as an anchor. The study found a clear trend: when exposed to a particular minimum wage, participants adjusted their perception of a fair wage towards that anchor. This effect occurred regardless of whether the presented minimum wage was artificially high or low. This demonstrates the power of the anchoring effect in shaping individuals' wage expectations.

How can understanding the minimum wage anchoring effect inform economic policy and promote fairer wage determinations?

Recognizing the minimum wage anchoring effect is crucial for promoting more objective and equitable wage determinations. Policymakers and employers should be aware that minimum wage levels can influence perceptions of fair compensation. This understanding can help inform policy decisions and negotiations. By being mindful of these biases, it is possible to create economic policies that promote fair compensation and avoid unintended consequences, such as the undervaluing of labor based on an arbitrary anchor.