The effect of enhancing workers' employability on small and medium enterprises:: Evidence from Spain

In this paper, we analyse the effect of promoting workers' employability on labour productivity. To this end, we adapt a simple efficiency-wage model that includes the employer's decision on the provision of opportunities for enhancing workers' employment prospects in a context of job insecurity. We show that (i) by facilitating workers' employability, the firm increases its labour productivity; and (ii) the higher the job uncertainty the higher the productivity gains due to the increase in employability. One of the advantages of our model is that it is simply enough to allow us to formulate two testable hypotheses, namely (i) the increase of jobs' potential to enhance workers' employability results in higher level of workers' effort, and (ii) the provision of employability is more profitable for small and medium enterprises (SMEs) than for large firms. More precisely, SMEs should obtain higher effort levels from employees by fostering workers' employability than large firms. We provide some evidence supporting these hypotheses from a highly representative sample of Spanish manufacturing firms.