DP4580 Firm-Specific Training

Author(s): Leonardo Felli, Christopher J Harris
Publication Date: August 2004
Keyword(s): employee evaluation, firm-specific human capital, firm-specific training, productivity enhancement
JEL(s): C78, D83, J41
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4580

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.