WHY DO FIRMS TRAIN - THEORY AND EVIDENCE

This paper offers a theory of training whereby workers do not pay for the general training they receive. The superior information of the cur rent employer regarding its employees' abilities relative to other fir ms creates ex post monopsony power, and encourages this employer to pr ovide and pay for training, even if these skills are general. The mode l can lead to multiple equlibria. In one equilibrium quits are endogen ously high, and as a result employers have limited monopsony power and provide little training, while in another equilibrium quits are low a nd training is high. Using microdata on German apprentices, we show th at the predictions of our model receive some support from the data.