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Training, Job Security And Incentive Wages

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  • Margarita Katsimi

Abstract

This paper considers the optimal level of firm-specific training by taking into account the positive effect of training on the expected duration of workers’ current employment. In the framework of an efficiency wage model, a short expected job tenure represents a disamenity that reduces the penalty from shirking. As this disamenity increases, workers have an incentive to continue providing a positive level of effort only if they are compensated by a higher wage. We endogenize the employment separation rate by introducing firm-specific training. Firm-specific training creates a rent that is lost if the worker is separated from the firm. As a result, the firm will be more reluctant to fire its trained workforce in a recession. This implies that firm-specific training can decrease current wages as it implies a credible commitment to lower future labour turnover.
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  • Margarita Katsimi, 2008. "Training, Job Security And Incentive Wages," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(1), pages 67-78, February.
  • Handle: RePEc:bla:scotjp:v:55:y:2008:i:1:p:67-78
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    References listed on IDEAS

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    Cited by:

    1. Richard Arend, 2014. "Social and Environmental Performance at SMEs: Considering Motivations, Capabilities, and Instrumentalism," Journal of Business Ethics, Springer, vol. 125(4), pages 541-561, December.
    2. Dan Bernhardt & Steeve Mongrain, 2010. "The Layoff Rat Race," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(1), pages 185-210, March.
    3. Florian Baumann, 2010. "Severance Payments as a Commitment Device," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(4), pages 715-734, December.

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