Discussion Paper Details

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Title: Why do Firms Train? Theory and Evidence

Author(s): Daron Acemoglu and Jrn-Steffen Pischke

Publication Date: September 1996

Keyword(s): Asymmetric Information, General Human Capital, German Apprenticeship System, Monopsony and Training

Programme Area(s): International Macroeconomics

Abstract: This paper offers and tests a theory of training whereby workers do not pay for general training they receive. The crucial ingredient in our model is that the current employer has superior information about the worker?s ability relative to other firms. This informational advantage gives the employer an ex-post monopsony power over the worker which encourages the firm to provide training. We show that the model can lead to multiple equilibria. In one equilibrium quits are endogenously high and as a result employers have limited monopsony power and are willing to supply only little training, while in another equilibrium quits are low and training high. We also derive predictions from our model not shared by other explanations of firm-sponsored training. Using microdata from Germany, we show that the predictions of the specific human capital model are rejected, while our model receives support from the data.

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Bibliographic Reference

Acemoglu, D and Pischke, J. 1996. 'Why do Firms Train? Theory and Evidence'. London, Centre for Economic Policy Research.