Replacing General Training with Specific Training: Why Restricting Alternatives Makes Sense

Abstract

This paper summarizes additional evidence indicating that much on-the-job training appears to be "specific" in that workers do not pay for such training in the form of lower starting wages. The paper then considers reasons why workers and firms might limit the portability of training. One rationale emerges in the context of a principal-agent model with firm moral hazard. A second rationale emerges in a model with financially-constrained workers. Our findings that individuals with higher education and more experience receive a higher proportion of training that is general is consistent with either the firm moral hazard model or financially-constrained worker model predictions concerning the optimal choice of the proportion of training that is specific.

JEL Classification: J0