Worker Reciprocity and Employer Investment in Training

Abstract

Standard economic theory predicts that firms will not invest in general training and will underinvest in specific training. Empirical evidence indicates, however, that firms do invest in general training of their workers and also points to no underinvestment in specific training. We propose a simple model in which a firm invests the socially optimal amounts in general and specific training if the worker is sufficiently motivated by reciprocity. A reciprocal worker may be willing to give the firm the full return on its investment. We present empirical evidence that is strongly supportive for the proposed mechanism. Workers with a high sensitivity to reciprocity have 15 percent higher training rates than workers with a low sensitivity to reciprocity.

Keywords: Training, Reciprocity

JEL Classification: J41