IZA DP No. 2932: Performance Pay, Training and Labor Mobility
revised version published as 'Profit Sharing for Increased Training Investments' in: British Journal of Industrial Relations. 2011, 49 (4), 643-665.
Market imperfections may cause firms and workers to under-invest in specific training. This paper shows that profit sharing may be a suitable instrument to enhance specific training investments, either by enhancing wage flexibility or by increasing the returns to training. As a result, profit sharing not only increases productivity by means of an effort effect, but also by increased training investments. Furthermore, the results suggest that older workers' employability can be improved if a profit-related remuneration is paid.