Skill, Productivity, and Wages: Direct Evidence from a Temporary Help Agency

Firms frequently provide general skill training for workers. Theories propose that labor market frictions entail wage compression, generate larger productivity gains than wage growth to skill acquisition, and motivate a firm to offer general skill training, but few studies directly test them. We use unusually rich data from a temporary help service firm that records both workers' wages and their productivity as measured by the fees charged to client firms. We find that skill acquired through training and learning by doing increases productivity more than wages, with such wage compression accounting for half of the average 40% productivity growth over 5 years of tenure.