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Training, Minimum Wages and the Earnings Distribution

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Author Info
Alison Booth
Mark L. Bryan

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Abstract

In this paper we highlight the relevance of work-related training to the minimum wage debate. We initially situate training incidence within the broader picture of the earnings distribution in Britain and demonstrate that lower-paid workers are less likely than workers towards the top of the hourly wage distribution to receive work-related training. We then show that work-related training is potentially important from a distributional standpoint, since it significantly increases individuals’ longer-term earning prospects. Next we report empirical results indicating that the introduction in 1999 of a national minimum wage in Britain had a small but statistically significant positive effect on subsequent training incidence for affected workers. In conclusion, we note that the available empirical evidence for Britain shows that minimum wages (i) are associated with a small increase in work-related training for the low paid and (ii) have not adversely affected the employment of British workers. We therefore suggest that the minimum wage has the potential to reduce wages inequality in the longer-term provided that it continues to be set at a level that does not threaten employment. This potential arises not just because of the direct and obvious effect of a minimum wage in increasing wages at the bottom of the distribution, but also through its more indirect effect on work-related training.

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Paper provided by Centre for Economic Policy Research, Research School of Social Sciences, Australian National University in its series CEPR Discussion Papers with number 537.

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Date of creation: Oct 2006
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Handle: RePEc:auu:dpaper:537

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Related research
Keywords: work-related training national minimum wage earnings distribution

Find related papers by JEL classification:
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
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  1. Richard Blundell & Lorraine Dearden & Costas Meghir & Barbara Sianesi, 1999. "Human capital investment: the returns from education and training to the individual, the firm and the economy," Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 1-23, March. [Downloadable!]
  2. Neumark, David & Wascher, William, 2001. "Minimum Wages and Training Revisited," Journal of Labor Economics, University of Chicago Press, vol. 19(3), pages 563-95, July. [Downloadable!] (restricted)
    Other versions:
  3. Sutherland, H., 2001. "The National Minimum Wage and In-work Poverty," Cambridge Working Papers in Economics 0111, Faculty of Economics, University of Cambridge. [Downloadable!]
  4. Wiji Arulampalam & Alison L. Booth & Mark L. Bryan, 2004. "Training in Europe," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 346-360, 04/05. [Downloadable!] (restricted)
    Other versions:
  5. repec:rus:hseeco:57408 is not listed on IDEAS
  6. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June. [Downloadable!] (restricted)
    Other versions:
  7. Stewart, Mark B, 2002. " Estimating the Impact of the Minimum Wage Using Geographical Wage Variation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(0), pages 583-605, Supplemen. [Downloadable!] (restricted)
    Other versions:
  8. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "Minimum Wages and On-the-job Training," NBER Working Papers 7184, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Melero, Eduardo, 2004. "Evidence on Training and Career Paths: Human Capital, Information and Incentives," IZA Discussion Papers 1377, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Machin, Stephen & Alan Manning & Lupin Rahman, 2003. "Where Minimum Wage Bites Hard: The Introduction of the UK National Minimum Wage to a Low Wage Sector," Royal Economic Society Annual Conference 2003 145, Royal Economic Society. [Downloadable!]
  11. Stevens, Margaret, 1994. "A Theoretical Model of On-the-Job Training with Imperfect Competition," Oxford Economic Papers, Oxford University Press, vol. 46(4), pages 537-62, October. [Downloadable!] (restricted)
  12. Hashimoto, Masanori, 1982. "Minimum Wage Effects on Training on the Job," American Economic Review, American Economic Association, vol. 72(5), pages 1070-87, December. [Downloadable!] (restricted)
  13. Mark B. Stewart, 2004. "The Impact of the Introduction of the U.K. Minimum Wage on the Employment Probabilities of Low-Wage Workers," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 67-97, 03. [Downloadable!] (restricted)
    Other versions:
  14. Chang, Chun & Wang, Yijiang, 1996. "Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 505-19, July. [Downloadable!] (restricted)
  15. Mirko Draca & Stephen Machin & John Van Reenen, 2006. "Minimum Wages and Firm Profitability," IZA Discussion Papers 1913, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  16. Andrea Bassanini & Alison Booth & Giorgio Brunello & Maria De Paola & Edwin Leuven, 2005. "Workplace Training in Europe," IZA Discussion Papers 1640, Institute for the Study of Labor (IZA). [Downloadable!]
  17. Hart, Robert A. & Ritchie, Felix, 1999. "Tenure-based Wage Setting," IZA Discussion Papers 47, Institute for the Study of Labor (IZA). [Downloadable!]
  18. Booth, Alison L & Zoega, Gylfi, 2001. "Is Wage Compression a Necessary Condition for Firm-Financed General Training?," CEPR Discussion Papers 2845, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  19. Wiji Arulampalam & Alison L. Booth & Mark L. Bryan, 2004. "Training and the new minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages C87-C94, 03. [Downloadable!] (restricted)
  20. Alison L. Booth & Mark L. Bryan, 2005. "Testing Some Predictions of Human Capital Theory: New Training Evidence from Britain," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 391-394, 06. [Downloadable!] (restricted)
  21. Stephen Machin & Alan Manning & Lupin Rahman, 2002. "Where the Minimum Wage Bites Hard: the Introduction of the UK National Minimum Wage to a Low Wage Sector," CEP Discussion Papers 0544, Centre for Economic Performance, LSE. [Downloadable!]
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