Back‐loaded Wages and On‐the‐job Training in a Frictional Labor Market

Abstract

This paper analyzes the coexistence of on‐the‐job (general) training and on‐the‐job search in a frictional labor market where firms post skill‐dependent labor contracts to preemptively back‐load compensation after training. The back‐loaded compensation scheme discourages trained workers' efficient job‐to‐job transition, as if they accumulated relationship‐specific capital, which induces overintensified training among more productive firms. The quantitative analysis predicts that the market equilibrium, relative to the efficiency benchmark, gets more skilled workers (training inefficiency) and less output (allocation inefficiency). It further demonstrates that efficiency loss is moderate due to positive externality and can be improved, as search friction is mitigated. (JEL J24, J31, J64)

Talent Poaching and Job Rotation

“…8 The literature has considered other remedies that employers can invoke to forestall unwanted departure of employees, such as relational contracting (Garicano and Rayo, 2017), deferred compensation (Salop and Salop, 1976;Sim, 2020) and non-competing clauses.…”

Talent Poaching and Job Rotation

“…However, in Section 3.2, we argue that this possibility is at odds with our empirical finding that the longer a guard has worked in a building, the less likely that a crime occurs when the guard is on duty. As for the learning aspect of rotation, we believe that it did not play a major role in our setting either, due to the type of rotation drops occured around the policy change (see Section 4.3).8 The literature has considered other remedies that employers can invoke to forestall unwanted departure of employees, such as relational contracting(Garicano and Rayo, 2017), deferred compensation(Salop and Salop, 1976;Sim, 2020) and non-competing clauses.…”