Training, search and wage dispersion

This paper combines on-the-job search and human capital theory to study the coexistence of firm-funded general training and frequent job turnovers. Although ex ante identical, firms differ in their training decisions. The model generates correlations between various firm characteristics that are consistent with the data. Wage dispersion exists among ex ante identical workers because workers of the same productivity are paid differently across firms, and because workers differ in their productivity ex post. Endogenous training breaks the perfect correlation between work experience and human capital, which yields new insights on wage dispersion and wage dynamics.

► Firm-funded general training and frequent job turnovers can co-exist. ► Ex ante identical workers may differ in their productivity levels. ► Endogenous training magnifies wage dispersion and wage persistence. ► Within-firm mean wage and wage dispersion are positively correlated. ► Firm size, wage growth rate and average tenure are positively correlated.