Family Ties and Training Provision in an Insider-Outsider Framework

On-the-job training of new employees is often realised through the help of experienced workers. Considering the lack of verifiability of the human capital transmission process and the loss of insiders' bargaining power deriving from it, we examine some firms' hiring policies, based on family relationships, aimed to elicit the incumbent workforce's cooperation in training. We proceed by introducing the assumption that individuals are moved by intra-family altruism and maximise a family utility function rather than an individual one. The implications of this assumption in an insider-outsider framework are explored: the family ties between insiders and outsiders can modify the insiders' convenience in following a non-cooperative behaviour aimed at obtaining a higher wage. The insiders might try to influence firms' hiring decisions by offering to cooperate in the training process of outsiders belonging to their own family. This could explain the evidence showing that many firms in depressed labour markets hire members of the same family