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Institutions and training inequality

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  • Lechthaler, Wolfgang
  • Snower, Dennis J.

Abstract

We analyze how firm-provided training is affected by the interaction among important institutional variables in the labor market: firing costs, minimum wages and unemployment benefits. We find that the degree of complementarity and substitutability among these variables depends on employees' abilities. Thereby the institutional interactions influence skill inequality. We derive how the influence of one of the institutional variables above is affected by other institutional variables with respect to inequality in skills arising from firm-provided training. We derive several striking results, such as: (a) the minimum wage and unemployment benefits generate increasing skill inequality whereas firing costs generate skill equalization; (b) unemployment benefits and firing costs are complements in their effects on skill inequality, (c) firing costs and the minimum wage are substitutes in their effects on skill equalization, and (d) unemployment benefits and the minimum wage are substitutes in their effects on skill inequality.

Suggested Citation

  • Lechthaler, Wolfgang & Snower, Dennis J., 2012. "Institutions and training inequality," European Journal of Political Economy, Elsevier, vol. 28(1), pages 88-104.
    • Handle: RePEc:eee:poleco:v:28:y:2012:i:1:p:88-104
    DOI: 10.1016/j.ejpoleco.2011.09.004
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    1. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
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    13. repec:hhs:iuiwop:500 is not listed on IDEAS
    14. Lechthaler, Wolfgang & Snower, Dennis J., 2008. "Minimum wages and training," Labour Economics, Elsevier, vol. 15(6), pages 1223-1237, December.
    15. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
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    2. Thomas RUTHERFORD, 2009. "Stochastic Programming in a Complementarity Format: Tools and Sample Applications," EcoMod2009 21500079, EcoMod.

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    More about this item

    Keywords

    Firm training; Skill inequality; Institutions;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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