Training and search on the job

Abstract

The paper studies human capital accumulation over workers' careers in an on-the-job search setting with heterogeneous firms. In renegotiation-proof employment contracts, more productive firms provide more training. General and specific training both induce higher wages within jobs and with future employers, even conditional on the future employer type.Because matches do not internalize the specific capital loss from employer changes, specific human capital can be over-accumulated, more so in low type firms. The analysis also establishes that general training can be efficient regardless of the level of labor market frictions.We calibrate the model to the US economy using Compustat and NLSY79. While validating the Acemoglu and Pischke (1999) mechanisms, the analysis nevertheless arrives at the opposite conclusion: increased labor market friction reduces training in equilibrium.