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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References 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.
- Stéphane CARCILLO & Etienne WASMER, 2003. "Bilateral Worker-Firm Training Decisions and an Application to Discrimination," Annales d'Economie et de Statistique, ENSAE, issue 71-72, pages 317-345.
- Acemoglu, Daron & Pischke, Jörn-Steffen, 1998.
"The Structure of Wages and Investment in General Training,"
CEPR Discussion Papers
1833, C.E.P.R. Discussion Papers.
- 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.
- Acemoglu, D. & Pischke, J.S., 1997. "The Structure of Wages and Investment in General Training," Working papers 97-24, Massachusetts Institute of Technology (MIT), Department of Economics.
- Daron Acemoglu & Jorn-Steffen Pischke, 1998. "The Structure of Wages and Investment in General Training," NBER Working Papers 6357, National Bureau of Economic Research, Inc.
- repec:spo:wpecon:info:hdl:2441/8941 is not listed on IDEAS
- Neumark, David & Wascher, William, 2001.
"Minimum Wages and Training Revisited,"
Journal of Labor Economics,
University of Chicago Press, vol. 19(3), pages 563-95, July.
- Ralf A. Wilke, 2005.
"New Extimates of the Duration and Risk of Unemployment for West-Germany,"
Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften,
Duncker & Humblot, Berlin, vol. 125(2), pages 207-237.
- Wilke, Ralf A., 2004. "New Estimates of the Duration and Risk of Unemployment for West-Germany," ZEW Discussion Papers 04-26, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Loewenstein, Mark A & Spletzer, James R, 1998. "Dividing the Costs and Returns to General Training," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 142-71, January.
- Dale T. Mortensen & Christopher A. Pissarides, 1993.
"Job Creation and Job Destruction in the Theory of Unemployment,"
CEP Discussion Papers
dp0110, Centre for Economic Performance, LSE.
- Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
- David S. Lee, 1999. "WAGE INEQUALITY IN THE UNITED STATES DURING THE 1980s: RISING DISPERSION OR FALLING MINIMUM WAGE?," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 977-1023, August.
- 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.
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