Underinvestment in Employee Training as a Positive Externality
Firms may underinvest in training employees because of a positive externality. If a trained worker is later hired by a different company, the new employer gains the benefit of the worker's skills without having contributed to the training costs. Because the original firm is not compensated for this external benefit, its private incentive to invest in comprehensive training is reduced, leading to a level of training that is below what is socially optimal. [7, 9]
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