DP1573 Training and Unions

Author(s): Alison L Booth, Monojit Chatterji
Publication Date: February 1997
Keyword(s): Efficiency, Monopsony, Quits, Trade Unions, Training, Wages
JEL(s): J20, J21, J23, J24, J41
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1573

The paper examines the optimal level of training investment when trained workers are mobile, wage contracts are time-consistent, and training comprises both specific and general skills. It is shown that, in the absence of a social planner, the firm has ex-post monopsonistic power that drives trained workers? wages below the socially-optimal level. The emergence of trade union bargaining at the firm level can increase social welfare, however, by counterbalancing the firm?s ex-post monopsonistic power in wage determination. Local union-firm wage bargaining ensures that the post-training wage is set sufficiently high to deter at least some quits, so that the number of workers the firm trains is nearer the socially-optimal number. The paper therefore sheds some light on the stylized facts that unions are associated with fewer quits and more firm-provided training.