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Training, Job Security and Incentive Wages

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  • Margarita Katsimi

Abstract

This paper considers the optimal level of firm-specific training by taking into account the positive effect of training on the expected duration of workers’ current employment. In the framework of an efficiency wage model, a short expected job tenure represents a disamenity that reduces the penalty from shirking. As this disamenity increases, workers have an incentive to continue providing a positive level of effort only if they are compensated by a higher wage. We endogenize the employment separation rate by introducing firm-specific training. Firm-specific training creates a rent that is lost if the worker is separated from the firm. As a result, the firm will be more reluctant to fire its trained workforce in a recession. This implies that firm-specific training can decrease current wages as it implies a credible commitment to lower future labour turnover.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-05/cesifo_wp955.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 955.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_955

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Keywords: efficiency wages; firm-specific training;

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References

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  1. John Abowd & Orley Ashenfelter, 1980. "Anticipated Unemployment, Temporary Layoffs and Compensating Wage Differentials," Working Papers 517, Princeton University, Department of Economics, Industrial Relations Section..
  2. Booth, Alison & Chatterji, Monojit, 1989. "Redundancy Payments and Firm-Specific Training," Economica, London School of Economics and Political Science, vol. 56(224), pages 505-21, November.
  3. Robert E. Hall, 1970. "Why Is the Unemployment Rate So High at Full Employment?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 369-410.
  4. Obstfeld, Maurice, 1990. "A Model of Currency Depreciation and the Debt-Inflation Spiral," CEPR Discussion Papers 431, C.E.P.R. Discussion Papers.
  5. Adams, James D, 1985. "Permanent Differences in Unemployment and Permanent Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 29-56, February.
  6. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9.
  7. Li, Elizabeth H, 1986. "Compensating Differentials for Cyclical and Noncyclical Unemployment: The Interaction between Investors' and Employees' Risk Aversion," Journal of Labor Economics, University of Chicago Press, vol. 4(2), pages 277-300, April.
  8. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-82, June.
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Cited by:
  1. Laszlo Goerke & Markus Pannenberg, 2005. "Berufliche Weiterbildung "on-the-job" und Auflösung von Beschäftigungsverhältnissen," Working Papers of the Research Group Heterogenous Labor 04-22, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.

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