DP12748 Firm-Specific Training
This paper investigates the market provision of firm-specific training, and
identifies the inefficiencies associated with it. Within a general stochastic
learning-by-doing model, there is a potential inefficiency in the market
provision of firm-specific training. In order to determine whether this
inefficiency is in fact present, we analyze two special cases of the model:
the accelerated productivity-enhancement model and the accelerated learning
model. In both models, the inefficiency is indeed present. However, the nature
of the inefficiency depends on the balance between the two key components of
training, namely productivity enhancement and employee evaluation. In the
accelerated productivity-enhancement model, training results in an increase in
productivity enhancement but no change in employee evaluation, and training is
overprovided by the market. In the accelerated learning model, training
results in a proportionate increase in both productivity enhancement and
employee evaluation, and training is underprovided by the market. In both
cases, turnover is inefficiently low.
