D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision MakingReturn

The question of the minimum wage has been constantly discussed in scientific economic literature. The dominant economic paradigm is neoclassical economics, which must cope with the attacks from modern streams of economic thought. The article analyses the fundamental differences in the approaches of the mainstream neoclassical and modern behavioural approach to labour economics. The comparison of the neoclassical and behavioural interpretation of the minimum wage points to the basic differences in the approach to the minimum wage. Neoclassical economics is founded on the theoretical basis of the competitive market and presents a reserved attitude to the minimum wage. From the position of positive economics, it demonstrates the decline in employment and the rise in unemployment as a consequence of this external intervention into market forces. It is, in essence, considered as inefficient redistribution, which acts as demotivation. Behavioural economics stems from imperfectly competitive labour markets and applies a normative approach: it articulates what the minimum wage should be. This line of reasoning leads to the concept of a "living wage" and a "social wage". The empirical studies support both the neoclassical and the behavioural approach towards labour markets. It would seem suitable to consider markets according to the type of competition and treat them differently regarding impact assessment and eventual minimum wage introduction.

Richard H. Thaler was awarded the 2017 Nobel Prize for Economics for the Development of Behavioural Economics. His studies of psychological assumptions of economic decision-making processes and his contribution to the interconnection of economics and psychology were identified as pioneering.

Indonesian migrant workers (IMW) face life difficulties after returning back to Indonesia. This is a contrary condition considering their contribution to their home family in Indonesia while working abroad. Literature mentions that their financial planning is the root of the poverty of ex-IMW. Therefore, this research adopts literacy theory to explain this phenomenon. This research conducted a survey among 548 ex-IMW and measures their financial literacy and financial planning. This research also maps their asset ownership to examine the relationship between financial literacy and asset ownership. Overall, this research documents that financial literacy contributes statistically significantly and positively to financial planning. Furthermore, this research shows that asset ownership is closely related to financial literacy. In a nutshell, this research concludes that it is important for migrant workers to have good knowledge of financial issues, because having good financial literacy helps the migrant workers to plan their finance and budget much better, thereby helping them to avoid the poverty trap. Therefore, policymakers such as migrant worker authorities and/or Indonesian embassies abroad have to institute financial education programmes for migrant workers before they return to Indonesia.

The article presents two other applications of the standard neoclassical model of consumption-leisure choice, which forms the individual labour supply. The first one is decision making concerning time allocation with regard to household production; the second one is focused on labour supply over the life cycle. The final part supports the theoretical conclusions of models with selected recent statistical data from the Czech background.