DP2177 Minimum Wages and On-the-Job Training

Author(s): Daron Acemoglu, Jörn-Steffen Pischke
Publication Date: July 1999
Keyword(s): Firm-Sponsored Training, General Human Capital, Imperfect Labour Markets, Low Wage Workers
JEL(s): J24, J31, J41, O0
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2177

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.