Product markets and industry-specific training

Abstract

We develop a product market theory to explain why firms provide their workers with skills that are also useful to their competitors. Firms first decide whether to invest in industry-specific training, then make wage offers for each others' trained employees and finally engage in imperfect product market competition. Equilibria with and without training can emerge. If competition is soft, firms invest in training if others do. Thereby, they avoid having to pay high wages for trained workers. Furthermore, we draw welfare conclusions from the analysis. Finally, we discuss how our ideas apply to supplier relationships and to general training. © 2012, RAND.