Investment in general training: the role of information and labour mobility

The major premise of this paper is that potential recruiters do not possess much information on the extent and type of workers' on-the-job training. This imposes substantial information-based costs on firms that recruit rather than train. These costs include opportunity costs, actual expense and increased exposure to risk. As a result, a recruiting firm will place a lower value on a recruited worker with general training than the firm that trained him. The wages paid to such a worker will reflect this lower value. The informational asymmetry between a training and a recruiting firm therefore reduces the net benefits that a worker with general training can obtain by moving to another firm. We shall argue that this implies that a firm may find it feasible to finance part, or all, of a worker's general training. Section I considers the value of a worker with general training to the firm that trained him. The cost implications of informational asymmetry between a training and a recruiting firm are discussed in Section II. Section III brings together the main strands of the argument to show that firms may finance part or all of its workers' general training. Extensions and some welfare and policy implications are offered in Section IV. -from Authors