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Product markets and industry-specific training


  • An earlier version of this article appeared as IZA Discussion Paper No. 327 and CEPR Discussion Paper No. 3490 entitled “A Product-Market Theory of Worker Training.” We are grateful to Thomas Borek, Stefan Bühler, Josef Falkinger, Salomon Faure, Dennis Gärtner, Stefan Imhof, Clare Leaver, Verena Liessem, Sarah Niggli, Andreas Polk, Max Pfister, Dario Sacco, Christoph Schmidt, Rahel Suter, Rainer Winkelmann, Josef Zweimüller, and participants at the International Conference on the Economics of Education in Zurich (2008) for helpful discussions. Two referees and the editor, Ben Hermalin, provided insightful comments.


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.