Do Minimum Wages Reduce Employment and Training?

Guntur Sugiyarto () and Benjamin Endriga ()
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Guntur Sugiyarto: Asian Development Bank
Benjamin Endriga: Asian Development Bank

No 113, ADB Economics Working Paper Series from Asian Development Bank

Abstract: This paper examines minimum wage effects on employment and training provision for various workers in different kinds of firms using unique firm-level data. The results show negative effects on unskilled workers but not on skilled ones, with the adverse effects more severe in small firms. Minimum wages also reduce in-house training for unskilled workers while the effects on skilled workers are mixed. The findings suggest that having been forced to pay higher wages because of binding and increasing minimum wages, firms reduce hiring and training of unskilled workers, leaving them unemployed and untrained. This should be of utmost concern as firms seem to adopt a short-term policy at a long-term cost for unskilled workers, further exacerbating unemployment and poverty. Moreover, the crucial role of firm characteristics in determining the adverse effects of minimum wages has raised reservations regarding previous studies that have used data from household or labor force surveys, which do not take this issue into account.

Keywords: employment; firm-level data; minimum wage effects; skilled workers; unskilled workers (search for similar items in EconPapers)
JEL-codes: J23 J24 J38 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2008-05-01
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