Working Paper: CEPR ID: DP12748
Authors: Leonardo Felli; Christopher J. Harris
Abstract: This paper investigates the market provision of firm-specific training, andidentifies the inefficiencies associated with it. Within a general stochasticlearning-by-doing model, there is a potential inefficiency in the marketprovision of firm-specific training. In order to determine whether thisinefficiency is in fact present, we analyze two special cases of the model:the accelerated productivity-enhancement model and the accelerated learningmodel. In both models, the inefficiency is indeed present. However, the natureof the inefficiency depends on the balance between the two key components oftraining, namely productivity enhancement and employee evaluation. In theaccelerated productivity-enhancement model, training results in an increase inproductivity enhancement but no change in employee evaluation, and training isoverprovided by the market. In the accelerated learning model, trainingresults in a proportionate increase in both productivity enhancement andemployee evaluation, and training is underprovided by the market. In bothcases, turnover is inefficiently low.
Keywords: specific human capital; training; learning-by-doing; turnover; productivity enhancement; employee evaluation
JEL Codes: D61; D86; J20; J24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm-specific training (M53) | productivity enhancement (O49) |
| firm-specific training (M53) | turnover (J63) |
| turnover (J63) | market efficiency (G14) |
| ALM (Accelerated Learning Model) (C45) | underprovision of training (J24) |
| APEM (Accelerated Productivity Enhancement Model) (E23) | overprovision of training (M53) |
| underprovision of training (J24) | inefficiency in turnover (J63) |
| overprovision of training (M53) | inefficiency in turnover (J63) |