Training, Job Security and Incentive Wages

27 Pages Posted: 17 Jun 2003

See all articles by Margarita Katsimi

Margarita Katsimi

Athens University of Economics and Business - Department of International and European Economic Studies; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2003

Abstract

This paper considers the optimal level of firm-specific training by taking into account the positive effect of training on the expected duration of workers' current employment. In the framework of an efficiency wage model, a short expected job tenure represents a disamenity that reduces the penalty from shirking. As this disamenity increases, workers have an incentive to continue providing a positive level of effort only if they are compensated by a higher wage. We endogenize the employment separation rate by introducing firm-specific training. Firm-specific training creates a rent that is lost if the worker is separated from the firm. As a result, the firm will be more reluctant to fire its trained workforce in a recession. This implies that firm-specific training can decrease current wages as it implies a credible commitment to lower future labour turnover.

Keywords: Efficiency Wages, Firm-specific Training

JEL Classification: J41, J33, J24

Suggested Citation

Katsimi, Margarita, Training, Job Security and Incentive Wages (May 2003). Available at SSRN: https://ssrn.com/abstract=415041 or http://dx.doi.org/10.2139/ssrn.415041

Margarita Katsimi (Contact Author)

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

76, Patision Avenue
GR-10434 Athens
Greece

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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