Why Do Firms Train? Theory and Evidence

51 Pages Posted: 10 Jun 2000 Last revised: 21 Dec 2001

See all articles by Daron Acemoglu

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Jörn-Steffen Pischke

London School of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 1996

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.

Suggested Citation

Acemoglu, Daron and Pischke, Jörn-Steffen (Steve), Why Do Firms Train? Theory and Evidence (June 1996). NBER Working Paper No. w5605. Available at SSRN: https://ssrn.com/abstract=225543

Daron Acemoglu (Contact Author)

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Jörn-Steffen (Steve) Pischke

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