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Market Conditions and Worker Training: How Does it Affect and Whom?

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  • Sumon Majumdar

    ()
    (Queen's University)

Abstract

This paper analyses the impact of labor market conditions on a firm's incentive to train its workers. In an equilibrium model of the labor market in which firms use both untrained and in-house trained workers, we show that the incidence of training increases with the tightness of the labor market. In a multi-sector framework, the usual threat of hold-up by a trained worker is more severe for workers who change their sector of work; during downturns, this serves to bias firms' incentives in imparting training away from such workers and towards workers already in the firm and those new workers coming from the same sector. Evidence from the NLSY confirms both predictions --- the incidence and duration of company-sponsored training is adversely affected by higher unemployment rates; furthermore, this negative effect is much stronger for workers who change industries as compared to those who do not.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1100.pdf
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1100.

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Length: 30 pages
Date of creation: Mar 2006
Date of revision:
Publication status: Forthcoming in Labour Economics
Handle: RePEc:qed:wpaper:1100

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Keywords: firm-sponsored training; labor market tightness; hold up; unemployment rate;

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  1. Lynch, Lisa M, 1992. "Private-Sector Training and the Earnings of Young Workers," American Economic Review, American Economic Association, vol. 82(1), pages 299-312, March.
  2. Bartel, Ann P & Sicherman, Nachum, 1998. "Technological Change and the Skill Acquisition of Young Workers," Journal of Labor Economics, University of Chicago Press, vol. 16(4), pages 718-55, October.
  3. 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.
  4. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 1-25, February.
  5. Chang, Chun & Wang, Yijiang, 1996. "Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 505-19, July.
  6. Acemoglu, Daron, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 445-64, July.
  7. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Intra-firm Bargaining under Non-binding Contracts," Review of Economic Studies, Wiley Blackwell, vol. 63(3), pages 375-410, July.
  8. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1987. "Employer Size: The Implications for Search, Training, Capital Investment, Starting Wages, and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 5(1), pages 76-89, January.
  9. 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.
  10. Black, Sandra E & Lynch, Lisa M, 1996. "Human-Capital Investments and Productivity," American Economic Review, American Economic Association, vol. 86(2), pages 263-67, May.
  11. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-60, March.
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Cited by:
  1. Mühlemann, Samuel & Wolter, Stefan C. & Wüest, Adrian, 2009. "Apprenticeship Training and the Business Cycle," IZA Discussion Papers 4460, Institute for the Study of Labor (IZA).
  2. Samuel Muehlemann & Stefan C. Wolter & Jürg Schweri & Rainer Winkelmann, 2007. "An empirical analysis of the decision to train apprentices," Economics of Education Working Paper Series 0005, University of Zurich, Institute for Strategy and Business Economics (ISU).
  3. Lutz Bellmann & Hans-Dieter Gerner & Ute Leber, 2014. "Firm-Provided Training During the Great Recession," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 234(1), pages 5-22, January.
  4. Francisca Bauer & Rudolf Hochholzer & Peter Huber, 2010. "Labour Turnover, Labour Market Density and In-house Training. Preliminary Results of the Vienna Employment and Skilling Monitor," WIFO Working Papers 367, WIFO.
  5. World Bank & National Research University – Higher School of Economics, 2013. "Developing Skills for Innovative Growth in the Russian Federation," World Bank Other Operational Studies 16100, The World Bank.
  6. Muehlemann, Samuel & Pfeifer, Harald & Walden, Günter & Wenzelmann, Felix & Wolter, Stefan C., 2010. "The financing of apprenticeship training in the light of labor market regulations," Labour Economics, Elsevier, vol. 17(5), pages 799-809, October.

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