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Investment in General Training with Consensual Layoffs

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  • Giulio Fella

    ()
    (Queen Mary, University of London)

Abstract

We study non-contractible firms' investment in general training in a model of frictional unemployment. Since training is vested in workers, firms' return to training is zero when a match ends. Consensual layoff provisions or large severance payments oblige firms to bargain efficiently over the joint payoff from separation. This increases employers' incentives to train as they share workers' outside return to general human capital. The result generalizes to all types of general investment that are vested in the non-investing party on separation. We also show that, independently from underinvestment in training, the laissez-faire equilibrium is always inefficient for any given level of investment.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp418.pdf
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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 418.

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Date of creation: Oct 2000
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Handle: RePEc:qmw:qmwecw:wp418

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Related research

Keywords: Consensual layoffs; General training; Matching;

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References

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  1. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
  2. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  3. Masters, Adrian M, 1998. "Efficiency of Investment in Human and Physical Capital in a Model of Bilateral Search and Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 477-94, May.
  4. Giulio Fella, 1999. "When Do Firing Costs Matter?," Working Papers 400, Queen Mary, University of London, School of Economics and Finance.
  5. repec:att:wimass:9524 is not listed on IDEAS
  6. Dietmar Harhoff & Thomas J. Kane, 1993. "Financing Apprenticeship Training: Evidence from Germany," NBER Working Papers 4557, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Koeniger, Winfried, 2002. "Employment Protection, Product Market Competition and Growth," IZA Discussion Papers 554, Institute for the Study of Labor (IZA).
  2. Koeniger, Winfried, 2003. "Collective Dismissal Cost, Product Market Competition and Innovation," IZA Discussion Papers 888, Institute for the Study of Labor (IZA).
  3. Kessing, Sebastian, 2002. "Employment protection and product market competition," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-31, Social Science Research Center Berlin (WZB).
  4. GĂ©rard Ballot & Fathi Fakhfakh & Erol Taymaz, 2002. "Who benefits from training and R&D: The firm or the workers? A study on panels of French and Swedish firms," ERC Working Papers 0201, ERC - Economic Research Center, Middle East Technical University, revised Jan 2002.

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