Employer Incentives for Providing Informal On-the-job Training in the Presence of On-the-job Search
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We analyze the provision of informal general training in a frictional labor market in which employers cannot commit to training levels and workers cannot commit to stay. We demonstrate that employers’ training decisions are driven by both an investment motive, to improve productivity, and a compensation motive, to increase employee retention. The investment motive decreases with higher wages, while the compensation motive increases. In our calibration exercises, the former dominates, which creates a negative relationship between wages and training. Furthermore, in contrast to recent studies missing the compensation motive, lessening the search frictions raises overall training levels due to enhanced compensation motives, approaching Becker’s result for a frictionless labor market.
KeywordsOn-the-job search On-the-job training
JEL ClassificationD83 E24 J24 J33 J64
We are indebted to Hidehiko Ichimura, John Kennan, Rasmus Lentz, Hideo Owan, Ozkan Eren, and Chris Taber for their helpful comments and warm encouragement. Seung-Gyu Sim acknowledges financial support by the Grants-in-Aid for Scientific Research (Kakenhi No. 26780170) from the Japan Society for the Promotion of Science. All remaining errors are ours.
Compliance with Ethical Standards
Conflict of interests
The authors declare that they have no conflict of interest.
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