Quality competition and worker training

Abstract

We examine the relationship between firm-sponsored training and product quality competition within a model of worker–firm bargaining. We develop a quality-adjusted monopolistically competitive setting in which firms invest in training to an extent that reflects: (i) the costs of training, (ii) the extent to which training increases product quality, and (iii) the extent to which product quality increases final product demand. We identify the conditions under which greater sensitivity between product demand and quality results in greater firm-sponsored training.