Minimum wages and training
The 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." We indicate that this effect may be important empirically. Finally, including workers' incentives to train themselves makes no major difference to our results.
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- repec:adr:anecst:y:2003:i:71-72:p:12 is not listed on IDEAS
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- Stéphane Carcillo & Etienne Wasmer, 2003. "Bilateral Worker-Firm Training Decisions and an Application to Discrimination," Sciences Po publications info:hdl:2441/8941, Sciences Po.
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"The Structure of Wages and Investment in General Training,"
Journal of Political Economy,
University of Chicago Press, vol. 107(3), pages 539-572, June.
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- Adam J. Grossberg & Paul Sicilian, 1999. "Minimum Wages, On-the-Job Training, and Wage Growth," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 539-556, January.
- David S. Lee, 1999. "Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum Wage?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 977-1023.
- repec:spo:wpecon:info:hdl:2441/8941 is not listed on IDEAS
- repec:adr:anecst:y:2033:i:71-72 is not listed on IDEAS
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