Why Do Firms Invest in General Training? 'Good' Firms and 'Bad' Firms as a Source of Monopsony Power

Alison Booth and Gylfi Zoega

No 2536, CEPR Discussion Papers from Centre for Economic Policy Research

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 models; Monopsony (search for similar items in EconPapers)
JEL-codes: J24 J31 J42 (search for similar items in EconPapers)
Date: 2000-08
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Citations: View citations in EconPapers (21)

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