Matching, Screening and Firm Investment in General Training: Theory and Evidence

When job matching is important, we show that firms will pay for general training under very weak conditions. The key ingredient in our model is the idea that it is more costly to screen skilled workers than it is to screen unskilled ones. In equilibrium, this 'softens' competition for trained workers, allowing firms to recoup training investments. We apply our model to a classic case of firm investment in general training - German Apprenticeship Training - and show that a key prediction of our model that is not shared by other models is strongly supported in the data.