Abstract
Within an incomplete-contract framework, we examine the consequences of contract renegotiation for contract design/enforcement and training market efficiency. Specifically, we show how the imposition of either firing costs or exit costs can bind together employers and employees in longer-lasting employment relationships that allow both agents to amortize their training investments. Nevertheless, the model implies that, although firing and exit costs provide institutional solutions to the training under-investment problem, this is achieved at the expense of allocative efficiency (efficient separations). Empirical evidence supports the existence of such a trade-off.
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revised version received July 23, 2003
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Adnett, N., Bougheas, S. & Georgellis, Y. On the Trade-off Between Work-related Training and Labor Mobility: The Role of Firing and Exit Costs. JEcon 82, 49–70 (2004). https://doi.org/10.1007/s00712-003-0031-0
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DOI: https://doi.org/10.1007/s00712-003-0031-0