The interaction of firing costs and firm training

By allowing firms to invest in their workers’ human capital, this paper extends the traditional analysis of firing costs with respect to two points, both of them positive in terms of welfare. On the one hand, firing restrictions reduce turnover, thereby enhancing incentives to provide training. On the other hand, training gives firms the opportunity to lower the costs of firing restrictions since well-trained workers are less likely to be fired. In this way the negative effects of firing costs on firm profitability and workers’ job-finding rates are reduced.

Wolfgang LechthalerEmail: