Investment in General Training with Consensual Layoffs

U of London Queen Mary Economics Working Paper No. 418

39 Pages Posted: 25 Oct 2001

See all articles by Giulio Fella

Giulio Fella

Queen Mary, University of London

Date Written: October 2000

Abstract

We study non-contractible firms' investment in general training in a model of frictional unemployment. Since training is vested in workers, firms' return to training is zero when a match ends. Consensual layoff provisions or large severance payments oblige firms to bargain efficiently over the joint payoff from separation. This increases employers' incentives to train as they share workers' outside return to general human capital. The result generalizes to all types of general investment that are vested in the non-investing party on separation. We also show that, independently from underinvestment in training, the laissez-faire equilibrium is always inefficient for any given level of investment.

Keywords: Consensual layoffs, general training, matching

JEL Classification: J24, J63, J65

Suggested Citation

Fella, Giulio, Investment in General Training with Consensual Layoffs (October 2000). U of London Queen Mary Economics Working Paper No. 418. Available at SSRN: https://ssrn.com/abstract=288411 or http://dx.doi.org/10.2139/ssrn.288411

Giulio Fella (Contact Author)

Queen Mary, University of London ( email )

Mile End Road
London E1 4NS, London E1 4NS
United Kingdom

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