Working Paper: NBER ID: w7184
Authors: Daron Acemoglu; Jrn 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 labor 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 constrained 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 of 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: minimum wages; on-the-job training; human capital
JEL Codes: J24; J31; J41
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 (binding) (J38) | training investments (M53) |
| minimum wages (J38) | worker productivity (J29) |
| worker productivity (J29) | training investments (M53) |
| minimum wages (J38) | reduction in training (M53) |