Template-type: ReDif-Paper 1.0 Author-Name: Pardesi, Mantej Author-workplace-name: ROA / Human capital in the region, RS: GSBE other - not theme-related research Title: Productivity convergence and firm’s training strategy Abstract: Productivity Convergence and Firm’s Training Strategy*
In this paper, I study how converging to the productivity frontier influences a firm’s training investments. Although productivity growth induces a high-skill bias in firm’s workforce structure, little is known about its training incentives for vocational and technical skills. I address endogeneity in productivity growth using a two-stage control function approach where I use productivity shocks as exogenous changes to a firm’s position in intra-industry distribution. I find that closing the gap to the frontier leads to a negative effect on firm’s investment in training in vocational skills. The negative effect is stronger for large, multi-plant, innovative and technical advanced firms. Using a model for firm sponsored training, I explain the results via a technology effect, cost of training effect and labour substitution effect. First, productivity convergence induces technology upgradation that is skill biased against vocational skills. Second, high expected costs of training augments this skill-biasedness. Third, compositional shift in workforce induces firms to demand fewer vocational and technical skills. Classification-JEL: d24,d23 Series: ROA Research Memoranda Creation-Date: 20240403 Number: 003 File-URL: https://cris.maastrichtuniversity.nl/ws/files/188622551/ROA_RM_2024_3.pdf File-Format: application/pdf File-Size: 1737627 Handle: Repec:unm:umaror:2024003 DOI: 10.26481/umaror.2024003