Creation of jobs and firm-sponsored training in a matching model of unemployment

Abstract

We offer a search and matching model with firms that create job vacancies and are willing to sponsor general skills training. The spillover of skilled labor between firms has the dual effect of increasing job vacancies and enhancing firms’ incentives for free riding. The former effect is combined with a reduction in search costs to cause a positive feedback between the supply of skilled labor and the creation of job vacancies, suggesting that firms encourage each other. On the other hand, with the latter effect, search costs are reduced, inducing firms to take a free ride on each other’s investments, thereby decreasing the supply of skilled labor and the creation of job vacancies. A reduction in search costs can lead to different results depending on which of the two mechanisms is actualized. Additionally, our analysis allows for “labor poachers,” or firms absorbing skilled labor in the market, to consider direct competition between training firms and poaching firms.