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Abstract:

Theoretical Economics Paper
Firm-Specific Training
Leonardo Felli and Christopher Harris
April 2004
Paper No' TE/2004/473:
Full Paper (pdf)

Tags: firm-specific training; productivity enhancement; employee evaluation; firm-specific human capital.

This paper introduces two complementary models of firm-specific training: an informational model and a productivity-enhancement model. In both models, market provision of firm-specific training is inefficient. However, the nature of the inefficiency depends on the balance between the two key components of training, namely productivity enhancement and employee evaluation. In the informal model, training results in a proportionate increase in productivity enhancement and employee evaluation, and training is underprovided by the market. In the productivity-enhancement model, training results in an increase in productivity enhancement but no change in employee evaluation, and training is overprovided by the market. In both models, turnover is inefficiently low.