Productivity Convergence and Firm’s Training Strategy

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Abstract

In this paper, I study how converging to the productivity frontier influences a firm’s training investments. Although productivity growth induces a high-skill bias in firm’s workforce structure, little is known about its training incentives for vocational and technical skills. I address endogeneity in productivity growth using a two-stage control function approach where I use productivity shocks as exogenous changes to a firm’s position in intra-industry distribution. I find that closing the gap to the frontier leads to a negative effect on firm’s investment in training in vocational skills. The negative effect is stronger for large, multi-plant, innovative and technical advanced firms. Using a model for firm sponsored training, I explain the results via a technology effect, cost of training effect and labour substitution effect. First, productivity convergence induces technology upgradation that is skill biased against vocational skills. Second, high expected costs of training augments this skill-biasedness. Third, compositional shift in workforce induces firms to demand fewer vocational and technical skills.
Original languageEnglish
PublisherMaastricht University, Graduate School of Business and Economics
Number of pages46
DOIs
Publication statusPublished - 4 Apr 2024

Publication series

SeriesGSBE Research Memoranda
Number003
ISSN2666-8807

JEL classifications

  • j24 - "Human Capital; Skills; Occupational Choice; Labor Productivity"
  • j42 - "Monopsony; Segmented Labor Markets"
  • d24 - "Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity"
  • d23 - "Organizational Behavior; Transaction Costs; Property Rights"

Keywords

  • Firm productivity
  • frontier
  • skill formation
  • training
  • technological change
  • Labour Polarisation

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