Technology adoption and labor training under uncertainty

Technology adoption must be accompanied by firm-specific employee training. The reliability of the effect of this training is uncertain. A model of the firm is developed incorporating training and uncertainty. The training effect on labor productivity is captured by an augmenter. The uncertainty is captured by a two-state probability function. Both of these are joint functions of the firm's investment in training. The first-order conditions for profit maximization give an ex post equation showing the training cost intensity (investment per total wage bill) as the sum of two elasticities: the investment elasticity of augmentation and the investment elasticity of probability. From previous empirical studies, estimates of the training cost ratio range from 4-10%, so the elasticities are relatively small (in the range 0.02-0.05), vet they are significant. (C) 2003 Elsevier Science Ltd. All rights reserved.