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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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Author Info
Booth, Alison L
Zoega, Gylfi

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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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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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Find related papers by JEL classification:
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Hamilton, Jonathan & Thisse, Jacques-François & Zenou, Yves, 1999. "Wage Competition with Heterogeneous Workers and Firms," CEPR Discussion Papers 2141, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Gaynor, Martin & Pauly, Mark V, 1990. "Compensation and Productive Efficiency of Partnerships: Evidence from Medical Group Practice," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 544-73, June. [Downloadable!] (restricted)
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    Other versions:
  6. John C. Haltiwanger & Julia I. Lane & James R. Spletzer, 1999. "Productivity Differences across Employers: The Roles of Employer Size, Age, and Human Capital," American Economic Review, American Economic Association, vol. 89(2), pages 94-98, May. [Downloadable!] (restricted)
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    Other versions:
  17. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June. [Downloadable!] (restricted)
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    Other versions:
  19. Daron Acemoglu & Jörn-Steffen Pischke, 1998. "Why Do Firms Train? Theory And Evidence," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 78-118, February. [Downloadable!] (restricted)
    Other versions:
  20. Light, Audrey & Ureta, Manuelita, 1992. "Panel Estimates of Male and Female Job Turnover Behavior: Can Female Nonquitters Be Identified?," Journal of Labor Economics, University of Chicago Press, vol. 10(2), pages 156-81, April. [Downloadable!] (restricted)
  21. Edwin Leuven & Hessel Oosterbeek, 1997. "Demand and Supply of Work-Related Training: Evidence from our Four Countries," Tinbergen Institute Discussion Papers 97-013/3, Tinbergen Institute.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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). [Downloadable!]
  2. Rita Asplund, 2004. "The Provision and Effects of Company Training. A brief review of the literature," Discussion Papers 907, The Research Institute of the Finnish Economy. [Downloadable!]
  3. Andrea Bassanini & Alison Booth & Giorgio Brunello & Maria De Paola & Edwin Leuven, 2005. "Workplace Training in Europe," IZA Discussion Papers 1640, Institute for the Study of Labor (IZA). [Downloadable!]
  4. 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. [Downloadable!]
  5. Nadège Marchand & Claude Montmarquette, 2008. "Training Without Certification: An Experimental Study," CIRANO Working Papers 2008s-01, CIRANO. [Downloadable!]
    Other versions:
  6. Anette Boom, . "Firms' Investments in General Training and the Market for Skilled Labour," Papers 013, Departmental Working Papers. [Downloadable!]
    Other versions:
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This page was last updated on 2009-11-25.

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