Working Paper: CEPR ID: DP1573
Authors: Alison L. Booth; Monojit Chatterji
Abstract: The paper examines the optimal level of training investment when trained workers are mobile, wage contracts are time-consistent, and training comprises both specific and general skills. It is shown that, in the absence of a social planner, the firm has ex-post monopsonistic power that drives trained workers? wages below the socially-optimal level. The emergence of trade union bargaining at the firm level can increase social welfare, however, by counterbalancing the firm?s ex-post monopsonistic power in wage determination. Local union-firm wage bargaining ensures that the post-training wage is set sufficiently high to deter at least some quits, so that the number of workers the firm trains is nearer the socially-optimal number. The paper therefore sheds some light on the stylized facts that unions are associated with fewer quits and more firm-provided training.
Keywords: training; quits; wages; monopsony; trade unions; efficiency
JEL Codes: J20; J21; J23; J24; J31; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm's monopsonistic power (J42) | post-training wage (J31) |
| trade union presence (J51) | post-training wage (J31) |
| trade union presence (J51) | number of trained workers (J24) |
| trade union presence (J51) | quits (J63) |