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Institutions and training inequality

Author

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  • Lechthaler, Wolfgang
  • Snower, Dennis J.

Abstract

We analyze the interaction among important institutional variables in the labor market (firing costs, minimum wages and unemployment benefits) in determining firm-provided training. We find that the institutional interactions - specifically, their degree of complementarity and substitutability - depends on employees' abilities. On this account, the institutional interactions influence skills inequality. We derive how the influence of one of the institutional variables above is affected by other institutional variables with respect to inequality skills arising from firm-provided training. We derive several striking results, such as: (a) the minimum wage and unemployment benefits generate increasing skills inequality whereas firing costs generate diminishing skills inequality; (b) unemployment benefits and firing costs are complements in their effects on skills disequalization, (c) firing costs and the minimum wage are complements in their effects on skills equalization, and (d) unemployment benefits and the minimum wage are substitution in their effects on skills inequality.

Suggested Citation

  • Lechthaler, Wolfgang & Snower, Dennis J., 2007. "Institutions and training inequality," Kiel Working Papers 1372, Kiel Institute for the World Economy (IfW Kiel).
  • Handle: RePEc:zbw:ifwkwp:1372
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    References listed on IDEAS

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    1. David T. Coe & Dennis J. Snower, 1997. "Policy Complementarities: The Case for Fundamental Labor Market Reform," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 1-35, March.
    2. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    3. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    4. Adam J. Grossberg & Paul Sicilian, 1999. "Minimum Wages, On-the-Job Training, and Wage Growth," Southern Economic Journal, John Wiley & Sons, vol. 65(3), pages 539-556, January.
    5. 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.
    6. Orszag, Mike & Snower, Dennis J., 1998. "Anatomy of Policy Complementarities," CEPR Discussion Papers 1963, C.E.P.R. Discussion Papers.
    7. repec:hhs:iuiwop:500 is not listed on IDEAS
    8. Orszag, Mike & Snower, Dennis J., 1998. "Anatomy of policy complementarities," Open Access Publications from Kiel Institute for the World Economy 2252, Kiel Institute for the World Economy (IfW Kiel).
    9. Daron Acemoglu, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Oxford University Press, vol. 64(3), pages 445-464.
    10. Lechthaler, Wolfgang & Snower, Dennis J., 2008. "Minimum wages and training," Labour Economics, Elsevier, vol. 15(6), pages 1223-1237, December.
    11. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
    12. Wolfgang Lechthaler, 2009. "The interaction of firing costs and firm training," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 36(3), pages 331-350, August.
    13. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Social, Employment and Migration Working Papers 35, OECD Publishing.
    14. Green, Francis, 1993. "The Determinants of Training of Male and Female Employees in Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(1), pages 103-122, February.
    15. Simon Rottenberg, 1981. "The Economics of Legal Minimum Wages," Books, American Enterprise Institute, number 971842, September.
    16. Lechthaler, Wolfgang & Snower, Dennis J., 2006. "Minimum wages and firm training," Kiel Working Papers 1298, Kiel Institute for the World Economy (IfW Kiel).
    17. Booth, Alison L, 1993. "Private Sector Training and Graduate Earnings," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 164-170, February.
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    1. Gilbert L. Skillman, 2022. "The Nash bargaining solution in labor market analysis," Metroeconomica, Wiley Blackwell, vol. 73(3), pages 884-899, July.
    2. Thomas RUTHERFORD, 2009. "Stochastic Programming in a Complementarity Format: Tools and Sample Applications," EcoMod2009 21500079, EcoMod.

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    More about this item

    Keywords

    Skills Inequality; Institutions; Firm Training;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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