Training and the new minimum wage

Using the British Household Panel Survey, we estimate the impact of the national minimum wage, introduced in April 1999, on the work-related training of low-wage workers. We use two ‘treatment groups’ – those workers who explicitly stated they were affected by the new minimum and those workers whose derived 1998 wages were below the minimum. Using difference-in-differences techniques for the period 1998 to 2000, we find no evidence that the introduction of the minimum wage reduced the training of affected workers and some evidence that it increased it. Human capital theory predicts that the introduction of a minimum wage in competitive labour markets will reduce general training investment by covered workers who can no longer finance such training through lower wages (Rosen, 1972). However if the low-paid labour market is imperfectly competitive, firms will be more likely to pay for general training, although under-provision may result; see inter alia Stevens (1994); Acemoglu and Pischke (1999). Intuitively, the monop-sonistic character of the labour market compresses workers ’ returns to human capital, allowing the firm to keep some of the surplus. By compressing wages further the introduction of a minimum wage can increase training. Early empirical studies that looked at the effect of training on wage growth found minimum wages to lower wage growth (Leighton and Mincer, 1981; Hashimoto, 1982). However more recent studies – all using US microdata – per-form more direct tests with better data but with mixed results. While Schille