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Training and worker effort: a signalling perspective

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Listed:
  • C. Simon Fan
  • Xiangdong Wei

Abstract

This paper analyzes the interaction between firms' investment in general skills training and workers' incentives. It shows that when a firm has an informational advantage over its workers, its provision of free general skills training can serve as a signal that there will be a long-term relationship between the firm and its workers. This signal induces the workers to exert more effort in learning firm-specific skills, which enhances the firm's profits. In contrast with most of the existing literature, the model implies that firms may provide free general skills training even if there is no labour market friction.

Suggested Citation

  • C. Simon Fan & Xiangdong Wei, 2010. "Training and worker effort: a signalling perspective," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 604-621, May.
  • Handle: RePEc:cje:issued:v:43:y:2010:i:2:p:604-621
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    More about this item

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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