Specific Training Sometimes Cuts Wages and Always Cuts Turnover

Abstract

Turnover falls with tenure, but wages do not always rise (and sometimes fall) with tenure. We reconcile these findings by revisiting an old issue: how gains from firm‐specific training are split between workers and firms. The division is determined by a stationary distribution of outside offers. The lower the wage a firm pays to a specifically trained worker, the more profit it makes but the more likely the employee is to leave. The optimal time paths of wages and turnover show that, if marginal product is increasing, wages need not be increasing but it always implies a falling turnover rate.