Equalization of Public Training Expenditure in a Cross-Border Labor Market

Abstract

This paper analyzes the equalization issue from an efficiency point of view in a two-region model. In each region there is a firm which maximizes profit by choosing wage in a common labor market. Each region is also characterized by different exogenous per worker training expenditure. Under these assumptions any of the two firms would choose a wage which is too high from the point of view of the other firm. The economic insight for this result is that the existence of workers mobility generates a negative externality. With our model we are able to show that by introducing equalization of per worker training expenditure both firms respond by decreasing wages. Moreover, for some productivity levels of training expenditure it is possible to find an equalization level which provokes a Pareto improvement in profits: hence both firms would benefit from full equalization of training expenditure.