Training and Unions

Alison Booth and Monojit Chatterji

No 1573, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The paper examines the optimal level of training investment when trained workers are mobile, wage contracts are time-consistent, and training comprises both specific and general skills. It is shown that, in the absence of a social planner, the firm has ex-post monopsonistic power that drives trained workers’ wages below the socially-optimal level. The emergence of trade union bargaining at the firm level can increase social welfare, however, by counterbalancing the firm’s ex-post monopsonistic power in wage determination. Local union-firm wage bargaining ensures that the post-training wage is set sufficiently high to deter at least some quits, so that the number of workers the firm trains is nearer the socially-optimal number. The paper therefore sheds some light on the stylized facts that unions are associated with fewer quits and more firm-provided training.

Keywords: Efficiency; Monopsony; Quits; Trade Unions; Training; Wages (search for similar items in EconPapers)
JEL-codes: J20 J21 J23 J24 J41 (search for similar items in EconPapers)
Date: 1997-02
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Citations: View citations in EconPapers (5)

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