Mismatch, On-the-job Training, and Unemployment

In this paper, training, which is seen as a way to reduce the mismatch between workers and jobs, takes place on the job. We show that a general rise in unemployment lowers the probability of on-the-job training by reducing the mismatch. We then close the model by assuming free-entry and study its social efficiency properties. Private educational choices are socially optimal, but job creation is too high under the Hosios condition. Using French data on regional unemployment, we estimate a probit model of the training decision and find that on-the-job training is significantly less probable in regions with high unemployment.