Minimum Wages and Trainers' Dilemma

This paper examines how a minimum wage, viewed as an incentive to trainers, would affect the informal help provided through on-the-job training. In the work environment, experienced employees play a significant role in training new employees. However, the more help they provide to trainees, the less likely that the trainers themselves will be promoted. This is the trainer's dilemma: help trainees or work for promotion. We show that a minimum wage alleviates the trainer's dilemma, as it increases the earnings of non-promoted workers and reduces the net benefit of promotion for experienced employees. Hence, minimum wage regulation encourages informal help and enhances welfare, although it reduces the firm's profit. Copyright 2010 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.