DP1524 Minimum Wage Legislation, Work Conditions and Employment

Author(s): Gianni De Fraja
Publication Date: November 1996
Keyword(s): Capital Investment, Minimum Wage Legislation, Training
JEL(s): J23
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1524

The effects of minimum wage legislation are analysed under the assumption that firms are able to alter the working conditions of their employees, and that workers have different preferences about the characteristics of their job. The main findings tally with Card and Krueger?s (1995) puzzling empirical evidence about the effects of changes in the minimum wage: the effects on employment are limited; there is a positive spillover on high wage workers; and there is bunching of workers at the minimum wage. The paper concludes by showing that if employers can change investment in fixed capital and in training, then an increase in the minimum wage will induce them to increase both, and this in turn may increase aggregate employment.