Working Paper: CEPR ID: DP2536
Authors: Alison Booth; Gylfi Zoega
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.
Keywords: firm-financed general training; hierarchical assignment; monopsony
JEL Codes: J24; J31; J42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| better workforces (J24) | invest in general training (M53) |
| monopsony power (J42) | invest in general training (M53) |
| task complexity (L23) | monopsony power (J42) |
| task complexity (L23) | invest in general training (M53) |
| economic rent from labor market frictions (J69) | invest in general training (M53) |
| better-than-average firms (L25) | provide training (M53) |
| bad firms (L20) | unlikely to receive training (J24) |
| task complexity (L23) | willingness to finance training (M53) |