Firm Training Standards

Firms underinvest in general skills training because the workers they train can be poached. The paper presented in this ZEW Research Seminar shows that precise training standards mitigate this market failure. It measures the precision of German apprenticeship standards from their wording. Standards are less precise in occupations with more firm-specific skill needs and under greater technological uncertainty, suggesting that regulators deliberately trade off the costs and benefits of precision. To isolate the causal effect of precise wording from such content-related factors, the authors exploit quasi-random variation in precision that arises because regulators copy wording across occupations. More precise standards raise firms' investment per trainee, training completion rates, and post-training wages, consistentwith higher training quality. Yet trained workers are no more likely to leave their training firm, and more firms offer training, with entry concentrated among firms that otherwise retain few of their trained workers. These patterns indicate that precise standards act as a coordination device: when all firms train to a common, high standard, well-trained workers are abundant, and each firm's trained workers are less likely to be poached.