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Productivity Convergence and Firm’s Training Strategy

Author

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  • Pardesi, Mantej

    (ROA / Human capital in the region, RS: GSBE other - not theme-related research)

Abstract
In this paper, I study how converging to the productivity frontier influences a firm’s training investments. Although productivity growth induces a high-skill bias in firm’s workforce structure, little is known about its training incentives for vocational and technical skills. I address endogeneity in productivity growth using a two-stage control function approach where I use productivity shocks as exogenous changes to a firm’s position in intra-industry distribution. I find that closing the gap to the frontier leads to a negative effect on firm’s investment in training in vocational skills. The negative effect is stronger for large, multi-plant, innovative and technical advanced firms. Using a model for firm sponsored training, I explain the results via a technology effect, cost of training effect and labour substitution effect. First, productivity convergence induces technology upgradation that is skill biased against vocational skills. Second, high expected costs of training augments this skill-biasedness. Third, compositional shift in workforce induces firms to demand fewer vocational and technical skills.

Suggested Citation

  • Pardesi, Mantej, 2024. "Productivity Convergence and Firm’s Training Strategy," Research Memorandum 003, Maastricht University, Graduate School of Business and Economics (GSBE).
    • Handle: RePEc:unm:umagsb:2024003
    DOI: 10.26481/umagsb.2024003
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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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