Unions and Efficient Training

Abstract

The paper examines the optimal level of training investment when trained workers are mobile, wage contracts are time‐consistent, and training comprises both specific and general skills. The firm has ex post monopsonistic power that drives trained workers' wages below the social optimum. The emergence of a trade union bargaining at the firm‐level can increase social welfare, by counterbalancing the firm's ex post monopsonistic power in wage determination. Local union‐firm wage bargaining ensures that the post‐training wage is set sufficiently high to deter at least some quits, so that the number of workers the firm trains is nearer the social optimum

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