Oligopsony, Institutions and the Efficiency of General Training

34 Pages Posted: 6 Dec 2002

See all articles by Alison L. Booth

Alison L. Booth

Australian National University (ANU) - Research School of Social Sciences (RSSS); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Marco Francesconi

University of Essex; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Gylfi Zoega

University of Iceland; University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Date Written: October 2002

Abstract

In oligopsonistic labour markets, firms have some market power, and a wedge is created between wages and marginal product. When oligopsonistic firms' production technology requires generally trained workers, firms may therefore receive part of the returns to general training and be willing to pay for it despite its general nature. However this outcome is not efficient, in the sense that too few workers are trained and workers who are hired receive too little training. We consider how different institutions can affect this inefficiency. Industry-level minimum wages can remove the training inefficiency and provide workers with the right incentives to invest in general training. A training subsidy to firms can also be used to achieve first-best. Trade unions might also remedy the market failure, in two ways. First, if an industry-wide union has a direct say in the training decision and maximises the utility of a representative worker, it will choose the efficient level of training intensity. Second, firmspecific unions, through raising relative wages and reducing turnover, can increase training intensity.

Keywords: Training, Oligopsony, Unions, Minimum Wages

JEL Classification: E32, J23, J24, J54

Suggested Citation

Booth, Alison L. and Francesconi, Marco and Zoega, Gylfi, Oligopsony, Institutions and the Efficiency of General Training (October 2002). Available at SSRN: https://ssrn.com/abstract=357221

Alison L. Booth (Contact Author)

Australian National University (ANU) - Research School of Social Sciences (RSSS) ( email )

Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 3285 (Phone)
+61 2 6125 0182 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Marco Francesconi

University of Essex ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206 873 534 (Phone)
+44 1206 873 151 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Gylfi Zoega

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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