On-The-Job Training Under Firm-Specific Innovations and Worker Heterogeneity

In this article I present a general equilibrium adverse selection model of the labor market in which workers differ in their ability to learn and implement new technologies. Exogenous firm-specific process innovations require firms to teach workers the new firm-specific skills introduced by the new technology. As firms' training costs negatively depend on the expected ability of their labor force and positively on their technological level, firms seek to hire workers able to learn at least cost. I show how firm-specific human capital can explain employer- and plant-specific wage differentials caused by skilled-labor-biased technological shocks.