Competition drives learning as workers thrive with choice, and firms innovate under pressure
Skills shape wages and career paths, determine firms’ competitiveness, and underpin long-run productivity. Skills are built both in school and on the job. But while we know a lot about education and schooling, we know far less about how skills evolve during adulthood. For most workers, this development happens at work, a dynamic environment shaped by the interaction of workers, firms, and markets. Understanding these interactions is crucial, not only to explain how skills are formed, but also to assess their impact on productivity, inequality, and long-term growth.
A common assumption is that competition discourages firms from providing training because workers who acquire new skills can be poached by competitors. But this is only part of the story. Much skill development happens informally, through learning-by-doing, teamwork, and self-directed effort, and these forms of learning respond differently to market forces. While competition may reduce firms’ willingness to pay for formal training, it can also boost workers’ motivation to invest in themselves when outside opportunities are strong.
Our recent IZA Discussion Paper introduces a new, integrated framework for understanding how workplace skills develop. Using rich new data from Norway, linking worker surveys, administrative records, and experiments with employees and managers, we find that competition acts as a powerful driver of learning. In more competitive markets, workers report greater skill development, firms spend more on training, and wages grow faster. Rather than discouraging investment, competition creates an environment where learning is both more valuable and more frequent.
A key reason is worker initiative. Workers are not passive recipients of employer-provided training. When they see attractive opportunities elsewhere, better jobs, higher pay, greater mobility, they invest in themselves. They seek out new tasks, build transferable skills, and take initiative in ways that pay off across employers. Informal learning, especially learning-by-doing, thrives under these conditions and leads to higher-order skills such as problem-solving, leadership, and teamwork, exactly the abilities most valued in dynamic economies and least easily taught in short courses.
Firms also respond to competition. Classic theory predicts that employers underinvest in training, but we find that many managers in competitive industries view training as essential. Even if they capture only part of the benefit, the value of having adaptable, skilled employees is too great to ignore. In fast-moving markets, the greater risk is failing to train and falling behind.
The policy implications are significant. If competitive markets are key to ongoing skill formation, then rising employer concentration and declining worker mobility threaten not just wages but also the process of human capital accumulation that fuels long-run growth. Policies that lower barriers to mobility, limit excessive market power, and reward transferable skills can keep this engine running and help workers continue to learn and adapt throughout their careers.
Our key finding is that competition does not undermine learning, it fuels it. Workers thrive when they have choices, and firms innovate when they face pressure. Recognizing this dynamic is essential to building a labor market that is both fair and resilient in the face of change.
© Alexander Willén and Mikko Silliman
Alexander Willén is a Professor of Economics at the Norwegian School of Economics, Norway, and IZA Research Affiliate
Mikko Silliman is Assistant Professor at the Aalto University, Finland, and IZA Research Affiliate
Please note:
We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.
Related IZA World of Labor content:
https://wol.iza.org/articles/importance-of-informal-learning-at-work by Andries De Grip
https://wol.iza.org/articles/skills-or-jobs-which-comes-first by Jesko Hentschel
https://wol.iza.org/articles/the-role-of-cognitive-and-socio-emotional-skills-in-labor-markets by Pablo Acosta and Noël Muller
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