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Title:Minimum wages and training
Authors:Lechthaler, Wolfgang
Snower, Dennis J.
Issue Date:2008
Citation:[Volume:] 15 [Issue:] 6 [Pages:] 1223-1237 [Journal:] Labour economics [ISBN:] 0927-5371
Abstract: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.
Subjects:Minimum Wage
Firm Training
Skills Inequality
JEL:J24
J31
Persistent Identifier of the first edition:doi:10.1016/j.labeco.2007.11.005
Document Type:Article
Appears in Collections:Economists Online

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