DP4580 Firm-Specific Training

Author(s): Leonardo Felli , Christopher J Harris

Publication Date: August 2004

Keyword(s): firm-specific training , productivity enhancement , employee evaluation , firm-specific human capital

JEL(s): C78 , D83 , J41

Programme Areas: Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP4580.asp

This Paper introduces two complementary models of firm-specific training: an informational model and a productivity-enhancement model. In both models, market provision of firm-specific training is inefficient. The nature of the inefficiency depends, however, on the balance between the two key components of training, namely productivity enhancement and employee evaluation. In the informational model, training results in a proportionate increase in productivity enhancement and employee evaluation, and training is underprovided by the market. In the 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 both models, turnover is inefficiently low.