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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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Citations

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Cited by:
  1. William Collier & Francis Green & Young-Bae Kim & John Peirson, 2011. "Education, Training and Economic Performance: Evidence from Establishment Survival Data," Journal of Labor Research, Springer, vol. 32(4), pages 336-361, December.
  2. Nadège Marchand & Claude Montmarquette, 2008. "Training Without Certification : An Experimental Study," Working Papers 0823, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  3. Anette Boom, . "Firms' Investments in General Training and the Market for Skilled Labour," Papers 013, Departmental Working Papers.
  4. Christos Bilanakos, 2011. "Career Concerns and Firm – Sponsored General Training," University of Cyprus Working Papers in Economics 07-2011, University of Cyprus Department of Economics.
  5. 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.
  6. Giorgio Brunello & Maria De Paola, 2004. "Market Failures and the Under-Provision of Training," CESifo Working Paper Series 1286, CESifo Group Munich.
  7. 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.
  8. 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).
  9. 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).

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