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Minimum Wages and On-the-Job Training

Author

Listed:
  • Acemoglu, Daron

    (MIT)

  • Pischke, Jörn-Steffen

    (London School of Economics)

Abstract

Becker’s theory of human capital predicts that minimum wages should reduce training investments for affected workers because they prevent these workers from taking wage cuts necessary to finance training. In contrast, in noncompetitive labor markets, minimum wages tend to increase training of affected workers because they induce firms to train their unskilled employees. We provide new estimates on the impact of the state and federal increases in the minimum wage between 1987 and 1992 on the training of low wage workers. We find no evidence that minimum wages reduce training, and little evidence that they tend to increase training. We therefore develop a hybrid model where minimum wages reduce the training investments of workers who were taking wage cuts to finance their training, while increasing the training of other workers. Finally, we provide some evidence consistent with this hybrid model.

Suggested Citation

  • Acemoglu, Daron & Pischke, Jörn-Steffen, 2001. "Minimum Wages and On-the-Job Training," IZA Discussion Papers 384, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp384
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    References listed on IDEAS

    as
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    5. Neumark, David & Wascher, William, 2001. "Minimum Wages and Training Revisited," Journal of Labor Economics, University of Chicago Press, vol. 19(3), pages 563-595, July.
    6. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
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    More about this item

    Keywords

    general human capital; low wage workers; Imperfect labor markets; firm sponsored training;
    All these keywords.

    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
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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