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Minimum Wages and On-the-Job Training

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  • Daron Acemoglu
  • Jörn-Steffen Pischke

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 in the US 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.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0527.

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Date of creation: Apr 2002
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Handle: RePEc:cep:cepdps:dp0527

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

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

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References

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  1. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  2. David S. Lee, 1999. "WAGE INEQUALITY IN THE UNITED STATES DURING THE 1980s: RISING DISPERSION OR FALLING MINIMUM WAGE?," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 977-1023, August.
  3. Dinardo, J. & Fortin, N.M. & Lemieux, T., 1994. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Cahiers de recherche 9406, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. repec:eme:rlepps:v:18:y:1999:i:1999:p:403-438 is not listed on IDEAS
  5. Daron Acemoglu & Jorn-Steffen Pischke, 1998. "Beyond Becker: Training in Imperfect Labor Markets," NBER Working Papers 6740, National Bureau of Economic Research, Inc.
  6. repec:fth:prinin:300 is not listed on IDEAS
  7. David Neumark & William Wascher, 1998. "Minimum Wages and Training Revisited," NBER Working Papers 6651, National Bureau of Economic Research, Inc.
  8. 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.
  9. Adam J. Grossberg & Paul Sicilian, 1999. "Minimum Wages, On-the-Job Training, and Wage Growth," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 539-556, January.
  10. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, May.
  11. Mark A. Loewenstein & James R. Spletzer, 1999. "General and Specific Training: Evidence and Implications," Journal of Human Resources, University of Wisconsin Press, vol. 34(4), pages 710-733.
  12. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section..
  13. Hashimoto, Masanori, 1982. "Minimum Wage Effects on Training on the Job," American Economic Review, American Economic Association, vol. 72(5), pages 1070-87, December.
  14. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The Minimum Wage: Some Aircover for Gene Sperling...
    by Brad DeLong in Grasping Reality with the Invisible Hand on 2006-06-22 17:14:58
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