Market Imperfections and Firm-Sponsored Training

Abstract

Market Imperfections and Firm-Sponsored TrainingPicchio, M.; van Ours, J.C. AbstractRecent human capital theories predict that labor market frictions and product market competition influence firm-sponsored training. Using matched worker-firm data from Dutch manufacturing, our paper empirically assesses the validity of these predictions. We find that a decrease in labor market frictions significantly reduces firms' training expenditures. Instead, product market competition does not have an effect on firm-sponsored training. We conclude that increasing competition through international integration and globalization does not pose a threat to investments in on-the-job training. An increase in labor market flexibility may reduce incentives of firms to invest in training, but the magnitude of this effect is small.

Product Market Competition and Employer Provided Training in Germany

“…They find no relationship between product market competition and the extent of training. Picchio and van Ours (2011) obtain a similar result for manufacturing firms in the Netherlands. This can be contrasted with Tignvall and Karpaty (2011) who examine the service sector in Sweden.…”

“…Yet, empirical evidence also remains inconclusive. Two studies show no association between product market competition and training, one using Dutch worker-manufacturing firm data on firm sponsored training (Picchio and van Ours 2011), the other using German manufacturing data (Görlitz and Stiebale 2011). By contrast, using Canadian data, Xu and Lin (2011) and Lai and Ng (2014) find a positive link between competition and training.…”

Employment Protection, Temporary Contracts and Firm-Provided Training: Evidence from Italy

“…Furthermore, studies exploiting within-country variation in levels of EPL do not find strong positive effects of EPL on training. For instance, Picchio and van Ours (2011) use Dutch data for manufacturing firms and find that higher labour market flexibility (i.e. lower EPL) marginally reduces firms' investment in training; however, this effect is rather small.…”

Do Dominant Firms Provide More Training?

“…To our knowledge there are six papers that examine the effect of product market competition on training. Two papers find no effect of product market competition on training, one using Dutch worker‐manufacturing firm data on firm sponsored training (Picchio and van Ours, ), the other using German establishment data (Görlitz and Stiebale, ). In contrast, Lai and Ng () find a strong and positive effect of competition on training using Canadian longitudinal matched employer‐employee data.…”

“…Indeed, the three theoretical contributions to date differ in their conclusions, predicting a positive, negative, and ambiguous relationship between training and product market competition (Bassanini and Brunello, ; Gersbach and Schmutzler, ; Lai and Ng, ). The existing empirical evidence remains similarly mixed, with some finding no effect of product competition on firm sponsored training (Görlitz and Stiebale, ; Picchio and Van Ours, ) and others finding a positive effect of competition (Lai and Ng, ) and of product market deregulation (Bassanini et al., ; Bassanini and Brunello, ) on training.…”