Back-Loaded Wages and On-the-Job Training in a Frictional Labor Market

30 Pages Posted: 27 Jul 2014 Last revised: 3 Sep 2019

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2019

Abstract

This paper analyzes the coexistence of on-the-job (general) training and on-the-job search in a frictional labor market where firms post skill-dependent labor contracts to preemptively back-load compensation after training. The back-loaded compensation scheme discourages trained workers' efficient job-to-job transition, as if they accumulated relationship-specific capital, which induces over-intensified training among more productive firms. The quantitative analysis predicts that the market equilibrium, relative to the efficiency benchmark, gets more skilled workers (training inefficiency) and less output (allocation inefficiency). It further demonstrates that efficiency loss is moderate due to positive externality and can be improved, as search friction is mitigated.

Keywords: On-the-Job Training, On-the-Job Search, Back-Loaded Wages

JEL Classification: J24, J31, J64

Suggested Citation

Sim, Seung-Gyu, Back-Loaded Wages and On-the-Job Training in a Frictional Labor Market (September 1, 2019). Available at SSRN: https://ssrn.com/abstract=2472272 or http://dx.doi.org/10.2139/ssrn.2472272

Seung-Gyu Sim (Contact Author)

Aoyama Gakuin University ( email )

4-4-25 Shibuya, Shibuya-ku
Tokyo, 150-8366
Japan

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