Barriers to entry, deregulation and workplace training: A theoretical model with evidence from Europe

We study the impact of regulatory barriers to entry on workplace training. We develop a model of training in imperfectly competitive product and labour markets. The model indicates that there are two contrasting effects of deregulation on training. As stressed in the literature, with a given number of firms, deregulation reduces the size of rents per unit of output that firms can reap by training their employees. Yet, the number of firms increases following deregulation, thereby raising output and profit gains from training and improving investment incentives. The latter effect prevails. In line with the predictions of the theoretical model, we find that the substantial deregulation in the 1990s of heavily regulated European industries (energy, transport and communication) increased training incidence.

► We show that there are two contrasting effects of deregulation on training: ► With a given number of firms, deregulation reduces the size of rents per unit of output that firms can reap by training their employees. ► The number of firms increases following deregulation, thereby raising output and profit gains from training and improving investment incentives. ► The latter effect prevails. ► We find that the substantial deregulation in the 1990s of heavily regulated European industries increased training incidence.