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Minimum Wages and On-the-Job Training


Jörn-Steffen Pischke


London School of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Daron Acemoglu


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

Abstract:     
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

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Date posted: October 28, 2001  

Suggested Citation

Pischke, Jörn-Steffen and Acemoglu, Daron, Minimum Wages and On-the-Job Training. MIT Department of Economics Working Paper No. 99-25; IZA Discussion Paper No. 384. Available at SSRN: http://ssrn.com/abstract=288292 or http://dx.doi.org/10.2139/ssrn.288292

Contact Information

Jörn-Steffen (Steve) Pischke (Contact Author)
London School of Economics ( email )
Houghton Street
London WC2A 2AE
+44 207 955 6509 (Phone)
+44 207 955 7595 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Daron Acemoglu
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Room E52-380b
Cambridge, MA 02142
United States
617-253-1927 (Phone)
617-253-1330 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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