Training and search for better matching in markets with asymmetric information

Abstract

In this paper, we argue that there is not necessarily a trade-off between turnover and aggregate training, as specified in the conventional literature, when considering a multisector dynamic model of investment in training. Although a larger turnover inhibits investment in training at present, greater allocative flexibility encourages better matchings of workers and jobs, which should induce a higher level of investment in training in the future. An important implication for public policy is that measures that reduce turnover may be harmless or even counterproductive for increasing aggregate investment in training. This result is derived from a model with heterogeneity of both workers and firms, which allows training investment decisions to be jointly determined with (endogenous) firing decisions.