Productivity convergence and firm’s training strategy

Mantej Pardesi
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Mantej Pardesi: ROA / Human capital in the region, RS: GSBE other - not theme-related research

No 3, ROA Research Memorandum from Maastricht University, Research Centre for Education and the Labour Market (ROA)

Abstract: Productivity Convergence and Firm’s Training Strategy* In this paper, I study how converging to the productivity frontier influences a firm’s training investments. Although productivity growth induces a high-skill bias in firm’s workforce structure, little is known about its training incentives for vocational and technical skills. I address endogeneity in productivity growth using a two-stage control function approach where I use productivity shocks as exogenous changes to a firm’s position in intra-industry distribution. I find that closing the gap to the frontier leads to a negative effect on firm’s investment in training in vocational skills. The negative effect is stronger for large, multi-plant, innovative and technical advanced firms. Using a model for firm sponsored training, I explain the results via a technology effect, cost of training effect and labour substitution effect. First, productivity convergence induces technology upgradation that is skill biased against vocational skills. Second, high expected costs of training augments this skill-biasedness. Third, compositional shift in workforce induces firms to demand fewer vocational and technical skills.

JEL-codes: D23 D24 (search for similar items in EconPapers)
Date: 2024-04-03
New Economics Papers: this item is included in nep-eff
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Persistent link: https://EconPapers.repec.org/RePEc:unm:umaror:2024003

DOI: 10.26481/umaror.2024003

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