September 2002

IZA DP No. 586: On-the-Job Training and the Effects of Insider Power

Pilar Diaz-Vazquez, Dennis J. Snower

published in: Labour Economics, 2006, 13 (3), 317-341

Suppose insiders use their market power to push up their wages, while entrants receive their reservation wages. How will employment and productivity be affected? In addressing this question, we focus on the role of on-the-job training. We show that on-the-job training makes insider wage hikes less detrimental to average employment (over booms and recessions), and may even cause employment to be stimulated. Furthermore, such training can make insider wage hikes more detrimental to average productivity.