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Minimum Wages and On-the-Job Training

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Author Info
Acemoglu, Daron
Pischke, Jörn-Steffen

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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. 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.

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Date of creation: Jul 1999
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Handle: RePEc:cpr:ceprdp:2177

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Related research
Keywords: Firm-Sponsored Training General Human Capital Imperfect Labour Markets Low Wage Workers

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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

References listed on IDEAS
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  1. Daron Acemoglu & Joern-Steffen Pischke, 1998. "Beyond Becker: Training in Imperfect Labor Markets," Working papers 98-12, Massachusetts Institute of Technology (MIT), Department of Economics.
    Other versions:
  2. 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)
  3. David Neumark & William Wascher, 1998. "Minimum Wages and Training Revisited," NBER Working Papers 6651, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August. [Downloadable!] (restricted)
  5. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," NBER Working Papers 4058, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  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)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alison Booth & Mark L. Bryan, 2006. "Training, Minimum Wages and the Earnings Distribution," CEPR Discussion Papers 537, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
  2. David Fairris & Roberto Pedace, . "The Impact of Minimum Wages on Job Training: An Empirical Exploration with Establishment Data," Claremont Colleges Working Papers 2000-36, Claremont Colleges. [Downloadable!]
    Other versions:
  3. M Manacorda & Enrico Moretti, 2002. "Intergenerational Transfers and Household Structure. Why Do Most Italian Youths Live With Their Parents?," CEP Discussion Papers 0536, Centre for Economic Performance, LSE. [Downloadable!]
  4. Jorn-Steffen Pischke, 2004. "Labor Market Institutions, Wages, and Investment," NBER Working Papers 10735, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Beissinger, Thomas, 2001. "The Impact of Labor Market Reforms on Capital Flows, Wages and Unemployment," IZA Discussion Papers 390, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Carlos Peraita, 2001. "Firm Sponsored Training In Regulated Labor Markets: Evidence From Spain," Working Papers. Serie EC 2001-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  7. Richard Dickens & Alan Manning, 2002. "Has The National Minimum Wage Reduced UK Wage Inequality?," CEP Discussion Papers 0533, Centre for Economic Performance, LSE. [Downloadable!]
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  8. Dustmann; Christian & Schönberg, Uta, 2004. "Training and Union Wages," IZA Discussion Papers 1435, Institute for the Study of Labor (IZA). [Downloadable!]
  9. Peter Rühmann & Jens Südekum, 2001. "Severance Payments and Firm-Specific Human Capital," Departmental Discussion Papers 111, University of Goettingen, Department of Economics. [Downloadable!]
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  10. David Neumark & Olena Nizalova, 2006. "Minimum Wage Effects in the Longer Run," Working Papers 050626, University of California-Irvine, Department of Economics. [Downloadable!]
    Other versions:
  11. 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!]
  12. repec:ese:iserwp: is not listed on IDEAS
  13. Wolfgang Lechthaler & Dennis J. Snower, 2006. "Minimum Wages and Firm Training," Kiel Working Papers 1298, Kiel Institute for the World Economy. [Downloadable!]
  14. William E. Even & David A. Macpherson, 2004. "The Wage and Employment Dynamics of Minimum Wage Workers," Labor and Demography 0404007, EconWPA. [Downloadable!]
  15. Lydon, Reamonn & Walker, Ian, 2004. "Welfare-to-Work, Wages and Wage Growth," IZA Discussion Papers 1144, Institute for the Study of Labor (IZA). [Downloadable!]
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  16. Anette Boom, . "Firms' Investments in General Training and the Market for Skilled Labour," Papers 013, Departmental Working Papers. [Downloadable!]
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  17. Kosali Ilayperuma Simon & Robert Kaestner, 2003. "Do Minimum Wages Affect Non-wage Job Attributes? Evidence on Fringe Benefits and Working Conditions," NBER Working Papers 9688, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Wiji Arulampalam & Alison Booth & Mark L. Bryan, 2006. "Is There a Glass Ceiling over Europe? Exploring the Gender Pay Gap across the Wages Distribution," CEPR Discussion Papers 510, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
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  19. Kuan Xu & Zhengxi Lin, 2007. "Participation in Employer-sponsored Training in Canada: Role of Firm Characteristics and Worker Attributes," Department of Economics at Dalhousie University working papers archive paperb1_7_ic_workingpaper, Dalhousie, Department of Economics. [Downloadable!]
  20. Arulampalam, Wiji & Booth, Alison L. & Bryan, Mark L., 2002. "Work-Related Training and the New National Minimum Wage in Britain," IZA Discussion Papers 595, Institute for the Study of Labor (IZA). [Downloadable!]
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