| Summary: | Failure in the training market may result from credit constraints and other capital market imperfections, deterring potential trainees, or labour market imperfections creating external benefits for firms. This paper presents a model of a training market affected by both problems, and examines their impact, and the impact of various policy measures, on the welfare of workers and firms. It is shown that there is a rationale for imposing training costs on firms, irrespective of the cause of under-investment. However, training levy schemes in which the levy depends upon the wage bill are shown to address capital market imperfections only.
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