DP1360 Quitting Externalities with Uncertainty about Future Productivity
Author(s): | Alison L Booth, Gylfi Zoega |
Publication Date: | March 1996 |
Keyword(s): | Quitting Externalities, Uncertainty, Under-investment |
JEL(s): | E32, J23, J24, J41 |
Programme Areas: | Human Resources |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=1360 |
This paper looks at the effect of quitting on the number of workers trained under conditions of uncertainty about future productivity when workers have both firm-specific and industry-specific skills. A new effect is found which works in the opposite direction to the undertraining result of Stevens (1994, 1995): A high quit rate makes investment in training less irreversible in the presence of firing costs and hence also less risky. This effect makes firms start hiring new workers at a lower level of productivity and hire more workers for a given increase in productivity. A rise in the quit rate can now either decrease or increase the number of trained workers.