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Authors:

• Simon FAN
  Lingnan University

• Xiangdong WEI
  Lingnan University

This paper provides a theoretical and empirical analysis that adds to the emerging literature on firms’ provision of general training. The model shows that when firms have an informational advantage in their types and/or their qualities of match with their workers, a firm’s provision of general training can serve as a signal that there will be a long-term relationship between the firm and its workers. This signal can induce the workers to exert more effort/time in learning the firm-specific skills, which enhance the workers’ productivities in the current firm. The model analyzes the signaling and imitating strategies of different types of firms and characterizes the conditions for the separating and pooling equilibria. Meanwhile, the model shows that the informational asymmetry lead to an increase in the average level of expenditure on a worker's general training, which mitigates the problems of under-investment in workers’ general training pointed out by the existing literature. It also implies that governments’ subsidy to general training may only achieve the outcome of increasing the inequality of workers’ skills. Further, we conduct an empirical investigation that tests our theory using a nationally representative matched employer-employee survey from the UK. The empirical results are all strongly consistent with the theoretical implications.