Worker Heterogeneity, New Monopsony, and Training

<jats:p><jats:bold>Abstract. </jats:bold> A worker's output depends not only on his/her own ability but also on that of colleagues, who can facilitate the performance of tasks that each individual cannot accomplish on his/her own. We show that this common‐sense observation generates monopsony power and is sufficient to explain why employers might expend resources on training employees even when the training is of use to other firms. We show that training will take place in better‐than‐average or ‘good’ firms enjoying greater monopsony power, whereas ‘bad’ firms will have low‐ability workers unlikely to receive much training.</jats:p>