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Oligopsony, Institutions and the Efficiency of General Training

Author

Listed:
  • Booth, Alison L.

    () (Australian National University)

  • Francesconi, Marco

    () (University of Essex)

  • Zoega, Gylfi

    () (Birkbeck College, University of London)

Abstract

In oligopsonistic labour markets, firms have some market power, and a wedge is created between wages and marginal product. When oligopsonistic firms' production technology requires generally trained workers, firms may therefore receive part of the returns to general training and be willing to pay for it despite its general nature. However this outcome is not efficient, in the sense that too few workers are trained and workers who are hired receive too little training. We consider how different institutions can affect this inefficiency. Industry-level minimum wages can remove the training inefficiency and provide workers with the right incentives to invest in general training. A training subsidy to firms can also be used to achieve first-best. Trade unions might also remedy the market failure, in two ways. First, if an industry-wide union has a direct say in the training decision and maximises the utility of a representative worker, it will choose the efficient level of training intensity. Second, firmspecific unions, through raising relative wages and reducing turnover, can increase training intensity.

Suggested Citation

  • Booth, Alison L. & Francesconi, Marco & Zoega, Gylfi, 2002. "Oligopsony, Institutions and the Efficiency of General Training," IZA Discussion Papers 618, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp618
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    References listed on IDEAS

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    1. Alison L. Booth & Marco Francesconi & Gylfi Zoega, 2003. "Unions, Work-Related Training, and Wages: Evidence for British Men," ILR Review, Cornell University, ILR School, vol. 57(1), pages 68-91, October.
    2. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June.
    3. Malcomson, James M. & Maw, James W. & McCormick, Barry, 2003. "General training by firms, apprentice contracts, and public policy," European Economic Review, Elsevier, vol. 47(2), pages 197-227, April.
    4. Barron, John M & Fuess, Scott M, Jr & Loewenstein, Mark A, 1987. "Further Analysis of the Effect of Unions on Training [Union Wages, Temporary Layoffs, and Seniority]," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 632-640, June.
    5. John M. Barron & Mark C. Berger & Dan A. Black, 1997. "On-the-Job Training," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ojt, November.
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    Cited by:

    1. Alison L. Booth & Marco Francesconi & Gylfi Zoega, 2003. "Unions, Work-Related Training, and Wages: Evidence for British Men," ILR Review, Cornell University, ILR School, vol. 57(1), pages 68-91, October.
    2. Ericson, Thomas, 2004. "Personnel training: a theoretical and empirical review," Working Paper Series 2005:1, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    3. Giuseppe Croce, 2005. "A model of training policies in an imperfectly competitive labour market," Working Papers 90, University of Rome La Sapienza, Department of Public Economics.
    4. Christian Dustmann & Uta Schönberg, 2009. "Training and Union Wages," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 363-376, May.
    5. Harald U. Pfeifer, 2008. "Train to gain – The benefits of employee-financed training in Germany," Economics of Education Working Paper Series 0037, University of Zurich, Department of Business Administration (IBW).

    More about this item

    Keywords

    oligopsony; training; minimum wages; unions;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms

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