Training and Turnover with Equilibrium Unemployment

Government policies that promote on-the-job training have different effects when, due to unemployment, workers value job security. In this case, an increase in specific training leads to greater job security and lower wages. The wage result, although perhaps counterintuitive, is supported by, and helps explain, published empirical work. Even with lower wages, training policies may be Pareto-improving or may lower welfare, depending on the elasticity of demand for labor. Training mandates and subsidies to training, because of their differing impacts on job security, have different unemployment and welfare effects; mandates are preferred. If government policy can influence specific training and job security independently, training is never optimally encouraged. Policies that promote general training and policies that promote specific training can both raise employment, but in different ways. Specific training lowers the employment outflow; general training raises the employment inflow.