Minimum Wages and On-the-Job Training
London School of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
MIT Department of Economics Working Paper No. 99-25
IZA Discussion Paper No. 384
Becker's theory of human capital predicts that minimum wages should reduce training investments for affected workers because they prevent these workers from taking wage cuts necessary to finance training. In contrast, in noncompetitive labor markets, minimum wages tend to increase training of affected workers because they induce firms to train their unskilled employees. We provide new estimates on the impact of the state and federal increases in the minimum wage between 1987 and 1992 on the training of low wage workers. We find no evidence that minimum wages reduce training, and little evidence that they tend to increase training. We therefore develop a hybrid model where minimum wages reduce the training investments of workers who were taking wage cuts to finance their training, while increasing the training of other workers. Finally, we provide some evidence consistent with this hybrid model.
Number of Pages in PDF File: 47
Keywords: Imperfect Labor Markets, Low Wage Workers, General Human Capital, Firm Sponsored Training
JEL Classification: J24, J31, J41
Date posted: October 28, 2001
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