Discussion paper

DP7881 Market imperfections and firm-sponsored training

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.


van Ours, J and M Picchio (eds) (2010), “DP7881 Market imperfections and firm-sponsored training”, CEPR Press Discussion Paper No. 7881. https://cepr.org/publications/dp7881