As noted in the Introduction (Chapter I), the free market fails to provide adequate incentives for training when the people who pay for the training cannot appropriate all the resulting benefits. This chapter shows that when workers who want jobs are not certain of getting job offers and when firms with vacancies are not certain of getting job applicants, a person who acquires training confers benefits on those who do not have to bear the training expenses. In particular, the more workers acquire training, the faster firms can expect to attract skilled workers and the more favourable will their outside opportunities in wage negotiations be (specifically, the lower the wage the firm can expect to achieve with potential substitutes for the skilled workers they are currently negotiating with). This raises firms' market power in wage negotiations and reduces workers' returns from training. The resulting ‘matching externality’ can lead to underinvestment in skills.