Oligopsony, Institutions and the Efficiency of General Training

Alison Booth, Marco Francesconi and Gylfi Zoega

No 618, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In oligopsonistic labour markets, firms have some market power, and a wedge is created between wages and marginal product. When oligopsonistic firms' production technology requires generally trained workers, firms may therefore receive part of the returns to general training and be willing to pay for it despite its general nature. However this outcome is not efficient, in the sense that too few workers are trained and workers who are hired receive too little training. We consider how different institutions can affect this inefficiency. Industry-level minimum wages can remove the training inefficiency and provide workers with the right incentives to invest in general training. A training subsidy to firms can also be used to achieve first-best. Trade unions might also remedy the market failure, in two ways. First, if an industry-wide union has a direct say in the training decision and maximises the utility of a representative worker, it will choose the efficient level of training intensity. Second, firmspecific unions, through raising relative wages and reducing turnover, can increase training intensity.

Keywords: oligopsony; training; minimum wages; unions (search for similar items in EconPapers)
JEL-codes: E32 J23 J24 J54 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2002-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - published in: J. Messina, C. Michelacci, J. Turunen and G. Zoega (eds.), Proceedings of the 2004 ECB/CEPR Labour Market Workshop, Edward Elgar 2006

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