Lecture 9 2-9-2012 Part 2 - 151 lecture 2-9-2012 Part 2...

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151 lecture 2-9-2012 Part 2 Economics of Training 1. Introduction Importance of employer-based training (excluding individual training, such as attending and paying for adult education classes on one’s own time) --Expenditures in dollars --For productivity growth --For keeping skills updated in a time of rapid technological change 2. Multiperiod model Productivity is lower during training and higher after. -- General point of the two-period model: since wages are higher than productivity during training, they have to be lower than productivity after training, in order for a net surplus > 0 over both periods. --Unless the workers accept a lower initial wage—a training or apprenticeship wage. 3. General skills a. Implies market failure in a competitive model . 1
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--Training increases productivity, which generates a higher market wage. --Since the firm needs to recapture its investment, it can only pay a wage that is lower than the new market wage. --Any firm that did not provide such training does not have to pay lower than the market wage, since it did not incur the same investment costs. --So firms that provide training in general skills lose their investment, which implies they will not provide it in the first place. b. In theory, t he firm can ask the workers to accept a lower wage to fully offset their training costs. --But this creates an opportunity for firms to exploit the low-paid trainees and do less training than they promised. ---So it’s not clear such a bargain would hold. c. In the real world, this bargain rarely happens . With only a few exceptions, we do not generally observe examples of workers in the U.S. taking a significant pay cut to accept employer training. Some exceptions: 2
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--- Graduate students and interns. University justifies low pay for graduate students by saying they are getting valuable training and a valuable credential. --- Medical interns, who graduate to better-paid residencies after a short period. --- In the building trades, where training is lengthy and results in an apprenticeship certification that is valuable. In Germany about half the 16-18 year olds are apprentices in such a system. d.
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Lecture 9 2-9-2012 Part 2 - 151 lecture 2-9-2012 Part 2...

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