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Why do Firms Train? Theory and Evidence

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  • Acemoglu, Daron
  • Pischke, Jörn-Steffen

Abstract

This paper offers and tests a theory of training whereby workers do not pay for general training they receive. The crucial ingredient in our model is that the current employer has superior information about the worker’s ability relative to other firms. This informational advantage gives the employer an ex-post monopsony power over the worker which encourages the firm to provide training. We show that the model can lead to multiple equilibria. In one equilibrium quits are endogenously high and as a result employers have limited monopsony power and are willing to supply only little training, while in another equilibrium quits are low and training high. We also derive predictions from our model not shared by other explanations of firm-sponsored training. Using microdata from Germany, we show that the predictions of the specific human capital model are rejected, while our model receives support from the data.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1460.

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Date of creation: Sep 1996
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Handle: RePEc:cpr:ceprdp:1460

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Keywords: Asymmetric Information; General Human Capital; German Apprenticeship System; Monopsony; Training;

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References

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  1. repec:nsr:niesrd:10 is not listed on IDEAS
  2. Nicholas Oulton & Hilary Steedman, 1994. "The British System of Youth Training: A Comparison with Germany," NBER Chapters, in: Training and the Private Sector, pages 61-76 National Bureau of Economic Research, Inc.
  3. Imbens, G. & Van Der Klaauw, W., 1993. "Evaluating the Cost of Conscription in the Netherlands," Harvard Institute of Economic Research Working Papers 1632, Harvard - Institute of Economic Research.
  4. James Heckman, 1993. "Assessing Clinton's Program on Job Training, Workfare, and Education in the Workplace," NBER Working Papers 4428, National Bureau of Economic Research, Inc.
  5. Acemoglu, Daron, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 445-64, July.
  6. Gibbons, Robert & Katz, Lawrence F., 1991. "Layoffs and Lemons," Scholarly Articles 3442782, Harvard University Department of Economics.
  7. Entorf, Horst & Gollac, Michel & Kramarz, Francis, 1997. "New Technologies, Wages and Worker Selection," CEPR Discussion Papers 1761, C.E.P.R. Discussion Papers.
  8. Dietmar Harhoff & Thomas J. Kane, 1993. "Financing Apprenticeship Training: Evidence from Germany," NBER Working Papers 4557, National Bureau of Economic Research, Inc.
  9. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics.
  10. Abe Yukiko, 1994. "Specific Capital, Adverse Selection, and Turnover: A Comparison of the United States and Japan," Journal of the Japanese and International Economies, Elsevier, vol. 8(3), pages 272-292, September.
  11. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, July.
  12. Topel, Robert H & Ward, Michael P, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 439-79, May.
  13. Katharine G. Abraham & Susan N. Houseman, 1993. "Job Security in America: Lessons from Germany," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number kagsnh1993.
  14. David Soskice, 1994. "Reconciling Markets and Institutions: The German Apprenticeship System," NBER Chapters, in: Training and the Private Sector, pages 25-60 National Bureau of Economic Research, Inc.
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