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. We show that when the assumption of perfectly competitive labour markets underlying this theory is relaxed, minimum wages can increase training of affected workers, by inducing firms to train their unskilled employees. More generally, a minimum wage increases training for con-strained workers, while reducing it for those taking wage cuts to finance their training. 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. These results are consistent with our model, but difficult to reconcile with the standard theory of human capital.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2177.
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 J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts O0 - Economic Development, Technological Change, and Growth - - General
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