Wednesday, December 14, 2016 | 2:00pm-3:30pm | Room 335, HSBC Business School Building

Abstract

This paper analyzes the coexistence of on-the-job training and on-the-job search in a frictional labor market where firms post skill-dependent wage-training contracts to preemptively back-load compensation. The back-loaded compensation discourages trained workers' efficient job-to-job transition, as if they jointly accumulated relationship-specific capital, which encourages firms' provision of general training. The quantitative analysis predicts that the market equilibrium, relative to the constrained planner's problem, gets more skilled workers (training inefficiency) and less outputs (allocation inefficiency), but aggregate efficiency loss is almost negligible or moderate. Also, both types of inefficiency can be improved, as the job turnover rate is accelerated.