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Training and Innovation in an Imperfect Labour Market

Training and Innovation in an Imperfect Labour Market This paper shows that in a frictional labour market part of the productivity gains from general training will be captured by future employers. As a result, investments in general skills will be suboptimally low, and contrary to the standard theory, part of the costs may be borne by the employers. The paper also demonstrates that the interaction between innovation and training leads to an amplification of this inefficiency and to a multiplicity of equilibria. Workers are more willing to invest in their skills by accepting lower wages today if they expect more firms to innovate and pay them higher wages in the future. Similarly, firms are more willing to innovate when they expect the quality of the future workforce to be higher, thus when workers invest more in their skills. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Economic Studies Oxford University Press

Training and Innovation in an Imperfect Labour Market

The Review of Economic Studies , Volume 64 (3) – Jul 1, 1997

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References (45)

Publisher
Oxford University Press
Copyright
© Published by Oxford University Press.
Subject
Articles
ISSN
0034-6527
eISSN
1467-937X
DOI
10.2307/2971723
Publisher site
See Article on Publisher Site

Abstract

This paper shows that in a frictional labour market part of the productivity gains from general training will be captured by future employers. As a result, investments in general skills will be suboptimally low, and contrary to the standard theory, part of the costs may be borne by the employers. The paper also demonstrates that the interaction between innovation and training leads to an amplification of this inefficiency and to a multiplicity of equilibria. Workers are more willing to invest in their skills by accepting lower wages today if they expect more firms to innovate and pay them higher wages in the future. Similarly, firms are more willing to innovate when they expect the quality of the future workforce to be higher, thus when workers invest more in their skills.

Journal

The Review of Economic StudiesOxford University Press

Published: Jul 1, 1997

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