TRAINING AND INNOVATION IN AN IMPERFECT LABOR-MARKET

This paper shows that in a frictional labour market part of the produc tivity gains from general training will be captured by future employer s. As a result, investments in general skills will be suboptimally low , and contrary to the standard theory, part of the costs may be borne by the employers. The paper also demonstrates that the interaction bet ween innovation and training reads to an amplification of this ineffic iency and to a multiplicity of equilibria. Workers are more willing to invest in their skills by accepting lower wages today if they expect more firms to innovate and pay them higher wages in the future. Simila rly, firms are more willing to innovate when they expect the quality o f the future workforce to be higher, thus when workers invest more in their skills.