Description:
This paper analyzes how an inefficient level of training expenditure is determined in a common labor market. In each region there is a planner which maximizes net product by choosing training expenditure and a firm which maximizes profit by choosing wage. Each region is also characterized by different training systems from a productive point of view. Under these assumptions any of the two planners would choose a level of training expenditure which is too low from the point of view of the other planner. The economic insight for this result is that the existence of worker mobility generates a positive externality. With our model we are able to show that if the difference in productivity between the two training systems is not too high, both regions will choose to implement the efficient centralized solution, internalizing externalities. Otherwise, the region with the more productive training system would not agree with the centralized solution