GDL

We show that minimum wages may have beneficial effects on human capital allocation in a situation when the marginal product of skilled labor is shared between


firm and worker according to bargaining strength. Firms prefer more productive workers to less productive ones, and workers that do not match up to a certain productivity floor are not hired. A minimum wage increases the productivity


requirement. To hang on to the primary sector, workers of intermediate talent are then induced to acquire more education, while there is a discouragement effect for workers of lesser talent. A minimum wage can increase welfare even in cases where


total education goes down. When the minimum wage is detrimental to welfare, the problem is typically tha'. some workers acquire too much education in the first place.

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