A THEORETICAL-MODEL OF ON-THE-JOB TRAINING WITH IMPERFECT COMPETITION

Training for skills which are transferable to other firms, but for whi ch the external labour market is imperfectly competitive, cannot be an alysed using the traditional tools of general and specific training. I t is shown that firms (as well as workers) have an incentive to invest in such training, but that there is an externality problem which may lead to under-investment. Using a formal model, it is shown that the p roblem is most severe at 'intermediate' levels of labour market compet ition. The effects are that too few workers are trained, and there is over-investment in purely specific training.