Minimum Wages and Firm Training
AbstractThe paper analyzes the influence of minimum wages on firms’ incentive to train their employees. We show that this influence rests on two countervailing effects: minimum wages (i) augment wage compression and thereby raise firms’ incentives to train and (ii) reduce the profitability of employees, raise the firing rate and thereby reduce training. Our analysis shows that the relative strength of these two effects depends on the employees’ ability levels. Our striking result is that minimum wages give rise to skills inequality: a rise in the minimum wage leads to less training for low-ability workers and more training for those of higher ability. In short, minimum wages create a "low-skill trap."
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1298.
Length: 21 pages
Date of creation: Sep 2006
Date of revision:
Minimum Wage; Firm Training; Skills Inequality;
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-BEC-2006-09-30 (Business Economics)
- NEP-HRM-2006-09-30 (Human Capital & Human Resource Management)
- NEP-LAB-2006-09-30 (Labour Economics)
- NEP-LTV-2006-09-30 (Unemployment, Inequality & Poverty)
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