Who Pays for Training? Theory and Evidence on Firm-Level Differences in Training Investments

Xiao Ma, Alejandro Nakab and Daniela Vidart

No 2025-05, Working papers from University of Connecticut, Department of Economics

Abstract: We investigate how on-the-job training varies with firm characteristics and how this informs the distribution of training costs between firms and workers. Using data from over 100 countries, we document that smaller firms consistently offer fewer training opportunities to their workers. Drawing on administrative data from China and Mexico, we identify differences in labor share and productivity levels as key factors explaining this pattern. We then build a general equilibrium model with various training costsharing schemes and show that only those in which firms bear a substantial share of training costs after hiring align with the empirical evidence. A quantitative version of the model calibrated to the US reveals significant inefficiencies in training provision, particularly among smaller firms, and suggests that (1) optimal training subsidies are higher for smaller firms, though even a uniform subsidy can raise net output by 7%; and (2) increasing the labor market share of larger firms can signifcantly impact on-the-job human capital formation.

Keywords: On-the-job training; Human capital accumulation; Firm heterogeneity (search for similar items in EconPapers)
JEL-codes: E24 J24 M53 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2025-04
New Economics Papers: this item is included in nep-dge and nep-lma
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