DP7881 Market imperfections and firm-sponsored training

Author(s): Matteo Picchio, Jan C. van Ours
Publication Date: June 2010
Keyword(s): firm-sponsored training, labor market frictions, matched worker-firm data, product market competition
JEL(s): D43, J24, J42, L22
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7881

Recent human capital theories predict that labor market frictions and product market competition influence firm-sponsored training. Using matched worker-firm data from Dutch manufacturing, our paper empirically assesses the validity of these predictions. We find that a decrease in labor market frictions significantly reduces firms' training expenditures. Instead, product market competition does not have an effect on firm-sponsored training. We conclude that increasing competition through international integration and globalization does not pose a threat to investments in on-the-job training. An increase in labor market flexibility may reduce incentives of firms to invest in training, but the magnitude of this effect is small.