Minimum Wages and On-the-Job Training

47 Pages Posted: 28 Oct 2001  

Jörn-Steffen Pischke

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

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

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.

Keywords: Imperfect Labor Markets, Low Wage Workers, General Human Capital, Firm Sponsored Training

JEL Classification: J24, J31, J41

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: https://ssrn.com/abstract=288292 or http://dx.doi.org/10.2139/ssrn.288292

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

IZA Institute of Labor Economics

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

Paper statistics

Downloads
543
Rank
36,018
Abstract Views
3,573