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Why Do Firms Invest in General Training? 'Good' Firms and 'Bad' Firms as a Source of Monopsony Power

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  • Booth, Alison L
  • Zoega, Gylfi

Abstract

We develop a model demonstrating conditions under which firms will invest in the general training of their workers, and show that firms’ incentives to invest in general training are increasing in task complexity. Workers’ heterogeneous observable innate ability affects the variety of tasks that can be performed within a firm. This gives monopsony power to firms with ‘better’ workforces. As a result such firms are willing to expend resources to provide workers with general training. Since the degree of monopsony power is increasing with task complexity, firms whose workforces undertake more sophisticated tasks are more willing to finance general training. We conclude that training will take place in better-than-average firms, while bad firms will have underperforming but overpaid workers that are not likely to be trained by their current employer.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2536.

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Date of creation: Aug 2000
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Handle: RePEc:cpr:ceprdp:2536

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Related research

Keywords: Firm-Financed General Training; Hierarchical Assignment Models; Monopsony;

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References

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  1. Meitzen, Mark E, 1986. "Differences in Male and Female Job-quitting Behavior," Journal of Labor Economics, University of Chicago Press, vol. 4(2), pages 151-67, April.
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  7. Acemoglu, Daron & Pischke, Jörn-Steffen, 1998. "The Structure of Wages and Investment in General Training," CEPR Discussion Papers 1833, C.E.P.R. Discussion Papers.
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  18. Campbell, Carl M, III, 1993. "Do Firms Pay Efficiency Wages? Evidence with Data at the Firm Level," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 442-70, July.
  19. Booth, Alison L & Zoega, Gylfi, 1999. "Do Quits Cause Under-Training?," Oxford Economic Papers, Oxford University Press, vol. 51(2), pages 374-86, April.
  20. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
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Citations

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Cited by:
  1. Rita Asplund, 2005. "The Provision and Effects of Company Training: A Brief Review of the Literature," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 47-73.
  2. Carlos Peraita, 2005. "Firm-sponsored training in regulated labour markets: evidence from Spain," Applied Economics, Taylor & Francis Journals, vol. 37(16), pages 1885-1898.
  3. William Collier & Francis Green & Young-Bae Kim & John Peirson, 2008. "Education, Training and Economic Performance: Evidence from Establishment Survival Data," Studies in Economics 0822, Department of Economics, University of Kent.
  4. Giorgio Brunello & Maria De Paola, 2004. "Market Failures and the Under-Provision of Training," CESifo Working Paper Series 1286, CESifo Group Munich.
  5. Boom, A., 2001. "Firm's Investment in General Training and the Market for Skilled Labour," Norway; Department of Economics, University of Bergen 1101, Department of Economics, University of Bergen.
  6. Vincent Delbecque & Sylvie Le Laidier & Jacques Mairesse & Laurence Nayman, 2012. "L'évaluation des investissements incorporels en France : Méthodes et premiers résultats," Working Papers 2012-26, Centre de Recherche en Economie et Statistique.
  7. Christian Pfeifer & Simon Janssen & Philip Yang & Uschi Backes-Gellner, 2010. "Training Participation of an Aging Workforce in an Internal Labor Market," Working Paper Series in Economics 170, University of Lüneburg, Institute of Economics.
  8. Bilanakos, Christos, 2013. "Career concerns and firm – sponsored general training," Research in Economics, Elsevier, vol. 67(2), pages 117-132.
  9. Carlos Peraita, 2001. "Firm Sponsored Training In Regulated Labor Markets: Evidence From Spain," Working Papers. Serie EC 2001-15, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Bassanini, Andrea & Booth, Alison L. & Brunello, Giorgio & De Paola, Maria & Leuven, Edwin, 2005. "Workplace Training in Europe," IZA Discussion Papers 1640, Institute for the Study of Labor (IZA).
  11. Asplund, Rita, 2004. "The Provision and Effects of Company Training. A brief review of the literature," Discussion Papers 907, The Research Institute of the Finnish Economy.
  12. Nadège Marchand & Claude Montmarquette, 2008. "Training Without Certification :An Experimental Study," Post-Print halshs-00333521, HAL.
  13. Uschi Backes-Gellner & Shiho Futagami & Silvia Teuber & Andrea Willi, 2013. "Differences in Initial Training and Wages of Japanese Engineering and Retailing Companies - Who Pays for Higher Training Costs?," Economics of Education Working Paper Series 0090, University of Zurich, Institute for Strategy and Business Economics (ISU).

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