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Do Minimum Wages Reduce Employment and Training?

Author

Listed:
  • Sugiyarto, Guntur

    (Asian Development Bank)

  • Endriga, Benjamin

    (Asian Development Bank)

Abstract

This paper examines minimum wage effects on employment and training provision for various workers in different kinds of firms using unique firm-level data. The results show negative effects on unskilled workers but not on skilled ones, with the adverse effects more severe in small firms. Minimum wages also reduce in-house training for unskilled workers while the effects on skilled workers are mixed. The findings suggest that having been forced to pay higher wages because of binding and increasing minimum wages, firms reduce hiring and training of unskilled workers, leaving them unemployed and untrained. This should be of utmost concern as firms seem to adopt a short-term policy at a long-term cost for unskilled workers, further exacerbating unemployment and poverty. Moreover, the crucial role of firm characteristics in determining the adverse effects of minimum wages has raised reservations regarding previous studies that have used data from household or labor force surveys, which do not take this issue into account.

Suggested Citation

  • Sugiyarto, Guntur & Endriga, Benjamin, 2008. "Do Minimum Wages Reduce Employment and Training?," ADB Economics Working Paper Series 113, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0113
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    References listed on IDEAS

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    1. 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.
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    More about this item

    Keywords

    employment; firm-level data; minimum wage effects; skilled workers; unskilled workers;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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