Market Imperfections and Firm-Sponsored Training
25 Pages Posted: 29 Jun 2010
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.
Keywords: firm-sponsored training, labor market frictions, product market competition, matched worker-firm data
JEL Classification: D43, J24, J42, L22, M53
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