The Theory of Human Capital Revisited: On the Interaction of General and Specific Investments

37 Pages Posted: 5 Jul 2001

See all articles by Anke S. Kessler

Anke S. Kessler

Simon Fraser University (SFU) - Department of Economics; University of Bonn - Economic Science Area; Centre for Economic Policy Research (CEPR)

Christoph Lülfesmann

University of Bonn - Economic Science Area; Simon Fraser University (SFU) - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: August 2000

Abstract

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.

Keywords: Human capital formation, general and specific training, hold-up problem

JEL Classification: C78, L14, L15, D82

Suggested Citation

Kessler, Anke S. and Lülfesmann, Christoph, The Theory of Human Capital Revisited: On the Interaction of General and Specific Investments (August 2000). CEPR Discussion Paper No. 2533. Available at SSRN: https://ssrn.com/abstract=271252

Anke S. Kessler (Contact Author)

Simon Fraser University (SFU) - Department of Economics ( email )

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University of Bonn - Economic Science Area ( email )

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+49 228 739 246 (Phone)
+49 228 739 221 (Fax)

HOME PAGE: http://www.wipol.uni-bonn.de/~kessler/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Christoph Lülfesmann

University of Bonn - Economic Science Area ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
+49 228 737 939 (Phone)
+49 228 739 239 (Fax)

Simon Fraser University (SFU) - Department of Economics ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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