August 2003

IZA DP No. 839: Is Training More Frequent When Wage Compression is Higher? Evidence from the European Community Household Panel

revised version published as 'Is training more frequent when the wage premium is smaller? Evidence from the European Community Household Panel' in: Labour Economics, 2008, 15(2), 272-290

When labor markets are imperfectly competitive, firms may be willing to finance general training if the wage structure is compressed, that is, if the increase of productivity after training is greater than the increase in pay. We propose a novel way of testing this proposition, which exploits the variation in training incidence and in the training wage premium within the European Union. Our results unambiguously show that (general) training incidence is higher in clusters – defined by country, sector, occupation and educational attainment – with a lower training wage premium, measured as the differential between the median wage growth of trained and untrained employees.