The Interaction of Firing Costs and Firm Training

This paper analyzes the effects of firing costs in a broader setup than what is usually done, allowing for on-the-job training. By doing so the traditional analysis is extended with respect to two points: On the one hand firing costs clearly increase firm training because worker and firm are less likely to separate. On the other hand, firm training gives firms the opportunity to lower the costs of firing restrictions: After all the value of output of a well-trained worker is less likely to turn negative. Through these two channels firm training is able to diminish the negative effects of firing restrictions usually discussed in the literature.