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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.

Suggested Citation

  • Booth, Alison L & Zoega, Gylfi, 2000. "Why Do Firms Invest in General Training? 'Good' Firms and 'Bad' Firms as a Source of Monopsony Power," CEPR Discussion Papers 2536, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2536
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Carlos Peraita, 2005. "Firm-sponsored training in regulated labour markets: evidence from Spain," Applied Economics, Taylor & Francis Journals, vol. 37(16), pages 1885-1898.
    2. 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.
    3. Nadège Marchand & Claude Montmarquette, 2008. "Training Without Certification: An Experimental Study," CIRANO Working Papers 2008s-01, CIRANO.
    4. Anette Boom, "undated". "Firms' Investments in General Training and the Market for Skilled Labour," Papers 013, Departmental Working Papers.
    5. 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).
    6. Bilanakos, Christos, 2013. "Career concerns and firm – sponsored general training," Research in Economics, Elsevier, vol. 67(2), pages 117-132.
    7. 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.
    8. Caliendo, Marco & Cobb-Clark, Deborah A. & Seitz, Helke & Uhlendorff, Arne, 2016. "Locus of Control and Investment in Training," IZA Discussion Papers 10406, Institute for the Study of Labor (IZA).
    9. Vincent Delbecque & Sylvie Le Laidier & Jacques Mairesse & Laurence Nayman, 2011. "L’évaluation des investissements incorporels en France : méthodes et premiers résultats," Économie et Statistique, Programme National Persée, vol. 450(1), pages 3-27.
    10. Giorgio Brunello & Maria De Paola, 2004. "Market Failures and the Under-Provision of Training," CESifo Working Paper Series 1286, CESifo Group Munich.
    11. 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.
    12. 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).
    13. Christian Pfeifer & Simon Janssen & Philip Yang & Uschi Backes-Gellner, 2010. "Training Participation of an Aging Workforce in an Internal Labor Market," Working Paper Series in Economics 170, University of Lüneburg, Institute of Economics.
    14. Uschi Backes-Gellner & Shiho Futagami & Silvia Teuber & Andrea Willi, 2013. "Differences in Initial Training and Wages of Japanese Engineering and Retailing Companies - Who Pays for Higher Training Costs?," Economics of Education Working Paper Series 0090, University of Zurich, Department of Business Administration (IBW).

    More about this item

    Keywords

    Firm-Financed General Training; Hierarchical Assignment Models; Monopsony;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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