Worker Heterogeneity,New Monopsony,and Training

Abstract. A worker's output depends not only on his/her own ability but also on that of colleagues, who can facilitate the performance of tasks that each individual cannot accomplish on his/her own. We show that this common‐sense observation generates monopsony power and is sufficient to explain why employers might expend resources on training employees even when the training is of use to other firms. We show that training will take place in better‐than‐average or ‘good’ firms enjoying greater monopsony power, whereas ‘bad’ firms will have low‐ability workers unlikely to receive much training.     

Labour‐market Institutions and Macroeconomic Shocks

Abstract. Macroeconomic shocks and labour‐market institutions jointly determine employment growth and economic performance. The effect of shocks depends on the nature of these institutions and the effect of institutional change depends on the macroeconomic environment. It follows that a given set of institutions may be appropriate in one epoch and not in another. We derive a dynamic model of labour demand in which the effect of firing costs on labour demand depends on the macroeconomic environment: when the level of macroeconomic activity is expected to drop and/or the trend rate of productivity growth is small, a rise in firing costs affects mainly (and adversely) the hiring decision and not the layoff decision. This makes firing costs harmful to employment when it may appear most appropriate. In contrast, firing costs can raise employment during periods of high growth and positive shocks. Our hypothesis is supported by empirical results using OECD data.