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Why Do Firms Invest in General Training? 'Good' Firms and 'Bad' Firms as a Source of Monopsony Power

  • Booth, Alison L
  • Zoega, Gylfi

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2536.

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Date of creation: Aug 2000
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Handle: RePEc:cpr:ceprdp:2536
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  1. Booth, Alison L & Francesconi, Marco & Zoega, Gylfi, 1999. "Training, Rent-Sharing and Unions," CEPR Discussion Papers 2200, C.E.P.R. Discussion Papers.
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  15. David H. Autor, 2000. "Why Do Temporary Help Firms Provide Free General Skills Training?," NBER Working Papers 7637, National Bureau of Economic Research, Inc.
  16. Campbell, Carl M, III, 1993. "Do Firms Pay Efficiency Wages? Evidence with Data at the Firm Level," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 442-70, July.
  17. Light, Audrey & Ureta, Manuelita, 1992. "Panel Estimates of Male and Female Job Turnover Behavior: Can Female Nonquitters Be Identified?," Journal of Labor Economics, University of Chicago Press, vol. 10(2), pages 156-81, April.
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  19. Meitzen, Mark E, 1986. "Differences in Male and Female Job-quitting Behavior," Journal of Labor Economics, University of Chicago Press, vol. 4(2), pages 151-67, April.
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  22. Booth, Alison L & Zoega, Gylfi, 1999. "Do Quits Cause Under-Training?," Oxford Economic Papers, Oxford University Press, vol. 51(2), pages 374-86, April.
  23. repec:eme:rlepps:v:18:y:1999:i:1999:p:303-330 is not listed on IDEAS
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