GEP Research Paper 01/35
On the Trade-off Between Work-related Training and Labor Mobility: The Role of Firing and Exit Costs
N. Adnetts, S. Bougheas and Y. Georgellis
Abstract
Within an incomplete contracts theoretic framework, we examine the consequences of contract renegotiation for contract design/enforcement and training market efficiency. Specifically, we show how the imposition of either firing costs or exit costs can bind together employers and employees in longer-lasting employment relationships that allow both agents to amortise their training investment. Nevertheless, the model implies that although firing and exit costs provide institutional solutions to the training under-investment problem, this is achieved at the expense of allocative efficiency (efficient separations). Empirical evidence supports the existence of such a trade-off.
Issued in February 2002.
This paper is available in PDF format .