Week4 - On the Job Training & Mobility

• explain how pooling equilibriums work


  when firms can't distinguish between low and high productivity workers they have to offer a salary that is the weighted average of both groups

  
  

  so salary is bad for high ability workers

  
  

  firms may not like this if, for instance, they have different tasks
• how can education be a signal

  if higher ability worker are more academically capable then it may be less costly for them to gain educational qualifications - effort, time, tuition etc

  
  

  then it may be optimal for firms to use university to separate workers

  
  

  i.e. low job > high job - (cost*years of education)

  
  

  so only high ability workers will choose to get a degree

  
• what effect does on the job training have on human capital

  on the job training increases human capital
• give and explain the two types of on the job training

  i. general - training that increases productivity and is useful in all firms

  
  

  ii. specific - training that only increase productivity in the one firm
• explain general training using a simple model


  i. workers work for two periods

  
  

  ii. TC is total cost of hiring workers in both periods

  
  

  iii. VMP is value of marginal product in each period

  
  

  iv. using this, the optimal employment choice is given for the firm
• give the equations allowing to find the optimal employment choice

  PV (wage + costs) = PV (marginal product) across both periods

  
• give the equation for when it costs H to provide training in the first period, increasing productivity in the second period

  
• where does workers VMP increase if training is general

  in all firms so the training firm has to pay w2 = VMP2 or the worker will be poached
• in equilibrium how do workers pay for general training


  by taking a lower wage in the first period, providing justification for trainee wages

  
• who pays for specific training

  the training has no value to other firms so firms could incur the cost and then not raise the wage after training has been completed but then the worker may quit

  
  

  if workers would pay, then they get a lower wage in the first period but then the firm does not have to pay them VMP2 in the second period since productivity has no outside value

  
  

  this leads to reluctance for both parties to invest

  
  

  however, one potential way is to pay a salary below productivity so the firm is better off but the salary does increase. this leads to the costs of training shared

  
• what are the implications of specific training

  - provides a potential explanation for long-term contractual arrangements

  
  

  - last in - first out (LIFO) firing where longer tenure workers have more specific training invested

  
  

  - temporary layoffs and recall where workers with a lot of specific training may have limited incentive to look for other work. they may try to sit out the unemployment spell in hopes than the former employer will recall them

  
  

  - firms only provide general training if they do not pay the costs

  
  

  - for the firm to pay some of the costs of specific training they must share in the returns

  
  

  - specific training eliminates the possibility of workers separating from the job in the post-training period
• explain negative state dependence

  if an agent gets more specific training as they spend more time in the firm then the probability of that worker quitting declines over time. the probability of job separation exhibits negative state dependence; it is lower the longer the worker has been in a particular employment state
• explain how human capital stock can be measured in efficiency units

  
• draw and explain the age-earnings profile

  
• when are human capital investments more profitable

  the earlier they are taken
• what can be said about the studies of the return to human capital investments

  they're unclear - largely because of self selection bias as the sample of workers is not randomly assigned to the treatment
• explain and give the pros and cons of using difference-in-differences

  - to estimate the treatment effect we could just compare the treated units before and after the treatment

  
  

  - however this might pick up the effects of other factors that changed around the time of treatment

  
  

  - therefore, we use a control group to difference out these confounding factors and isolate the treatment effect

  
  

  pros : estimator is insensible to change in the global state of the economy

  
  

  cons : common trend assumptions i.e. trends that may affect participants and nonparticipants are identical
• what is the correlation between a workers age and the probability of job separation

  strong negative - fits the hypothesis that labour turnover is affected by human capital investment
• why do senior workers rarely leave their jobs


  they have a smaller payoff period to recoup the costs associated with job search

  
  

  also when worker is given specific training then their productivity improves only at the given firm
• define efficient turnover


  a mechanism by which workers and firms correct matching errors to obtain a better and more efficient allocation of resources
• what often happens to young people who quit

  they experience substantial increases in wages
• what happens to workers who are laid off

  they experience wage cuts
• what do workers earnings depend on

  total labour market experience and seniority are the current job
• what are the effects for workers with good match employment


  they have low probabilities of job separation and these workers will tend to have seniority at the job