Minimum wages and firm training

Wolfgang Lechthaler and Dennis J. Snower

No 1298, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

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."

Keywords: Firm Training; Skills Inequality; Minimum Wage (search for similar items in EconPapers)
JEL-codes: J24 J31 (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Minimum Wages and Firm Training (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1298

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