Training and Search On the Job

Abstract

The paper studies human capital accumulation over workers' careers in an on the job search setting with heterogenous firms. In renegotiation proof employment contracts, more productive firms provide more training. Both general and specific training induce higher wages within jobs, and with future employers, even conditional on the future employer type. Because matches do not internalize the specific capital loss from employer changes, specific human capital can be over-accumulated, more so in low type firms. While validating the Acemoglu and Pischke (1999) mechanisms, the analysis nevertheless arrives at the opposite conclusion: That increased labor market friction reduces training in equilibrium.

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

“…This paper shares a similar motivation with Moen and Rosen (), who argue that an efficient level of training can be achieved in a frictional labor market if employers and employees are able to coordinate efficiently, as by means of long‐term contracts on wages, training intensity, and search intensity. Later, Lentz and Roys () also demonstrate that the market equilibrium may provide an efficient level of general training. Those papers do not account, however, for the possibility of overinvestment .…”

“…Another interesting research question regarding on‐the‐job training is whether firms provide more training, as search friction becomes mitigated. Lentz and Roys () show that reduced labor market friction promotes training in equilibrium. Sim and Huegerich () also show that depending on social norm, firms may provide more intensified (informal) training, as the search friction is mitigated.…”

“…This implies that condition (29) is not so restrictive, and also explains why the current study, which considers job turnover by unskilled workers, unlike previous 11. The notion of the future employer externality is borrowed from Lentz and Roys (2016). studies that considered only job turnover after training, finds the possibility of overinvestment in general training.…”

Search, Matching and Training

“…In his case, all investment in skills occurs instantaneously at the beginning of a job spell. Lentz and Roys (2015), instead, assume that general and match-specific skills are binary, and that for a low-type worker on either dimension the cost of training is a flow cost that is increasing in the rate at which the transition to the high skill type occurs. Depreciation in skills is not considered in either paper.…”

“…This paper also allows for worker heterogeneity that is an endogenous stochastic process partially determined through the investment decisions of workers and firms. Lentz and Roys (2015) also examine general and specific human capital accumulation in a model that features worker-firm renegotation and the ability of firms to make lifetime welfare promises to workers in the bargaining stage. There is firm heterogeneity in productivity, and the authors find that better firms provide more training.…”