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On the Trade-off Between Work-related Training and Labor Mobility: The Role of Firing and Exit Costs

Nick Adnett, Spiros Bougheas and Yannis Georgellis
Journal of Economics
Vol. 82, No. 1 (2004), pp. 49-70
Published by: Springer
Stable URL: http://www.jstor.org/stable/41795170
Page Count: 22
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On the Trade-off Between Work-related Training and Labor Mobility: The Role of Firing and Exit Costs
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Abstract

Within an incomplete-contract 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 amortize their training investments. 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.

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