Working Paper: CEPR ID: DP2177
Authors: Daron Acemoglu; Jörn-Steffen Pischke
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. We show that when the assumption of perfectly competitive labour markets underlying this theory is relaxed, minimum wages can increase training of affected workers, by inducing firms to train their unskilled employees. More generally, a minimum wage increases training for con-strained workers, while reducing it for those taking wage cuts to finance their training. 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. These results are consistent with our model, but difficult to reconcile with the standard theory of human capital.
Keywords: Imperfect Labour Markets; Low-Wage Workers; General Human Capital; Firm-Sponsored Training
JEL Codes: J24; J31; J41; O0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| minimum wages (J38) | training investments (M53) |
| minimum wages increase training for constrained workers (J24) | training investments (M53) |
| minimum wages reduce training for those who can finance their training through wage reductions (J38) | training investments (M53) |
| minimum wages have ambiguous effects on training investments (J24) | training investments (M53) |