The Theory of Human Capital Revisited: On the Interaction of General and Specific Investments
Anke S. Kessler
Simon Fraser University (SFU) - Department of Economics; University of Bonn - Economic Science Area; Centre for Economic Policy Research (CEPR)
University of Bonn - Economic Science Area; Simon Fraser University (SFU) - Department of Economics
CEPR Discussion Paper No. 2533
Human capital theory distinguishes between training in general-usage and firm-specific skills. In his seminal work, Becker (1964) argues that employers will not be willing to invest in general training when labour markets are competitive. However, they are willing to invest in specific training because it cannot be transferred to outside firms. The paper reconsiders Becker's theory. We show that there exists an incentive complementarity between employer-sponsored general and specific investments: the possibility to provide specific training leads the employer to invest in general human capital. Conversely, the latter reduces the hold-up problem that arises with respect to the provision of firm-specific training. These findings hold even if there is no technological link between the two types of training. We also consider the virtues of long-term contracting and discuss some empirical observations that could be explained by the model.
Number of Pages in PDF File: 37
Keywords: Human capital formation, general and specific training, hold-up problem
JEL Classification: C78, L14, L15, D82working papers series
Date posted: July 5, 2001
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