DP4879 | The Effects of Globalization on Worker Training

Publication Date

23/01/2005

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Abstract

We examine how globalization affects firms? incentives to provide general worker training. We consider a three-stage game. In stage 1, firms invest in productivity-enhancing training. In stage 2, they can make wage offers for each others? workers. Finally, Cournot competition takes place. When two product markets become integrated, that is, replaced by a market with greater demand and more firms, training by each firm increases, provided the two markets are sufficiently small. When barriers between large markets are eliminated, training is reduced. Integration increases welfare if it does not reduce training. However, for large parameter regions, welfare falls if integration reduces training. We also show that opening markets to countries with publicly funded training or cheap, low-skilled labour can threaten apprenticeship systems.