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

35 Pages Posted: 6 Oct 2001

See all articles by Christoph Lülfesmann

Christoph Lülfesmann

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

Anke S. Kessler

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

Multiple version iconThere are 3 versions of this paper

Date Written: September 2002

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 labor 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. 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

Lülfesmann, Christoph and Kessler, Anke S., The Theory of Human Capital Revisited: On the Interaction of General and Specific Investments (September 2002). CESifo Working Paper Series No. 776. Available at SSRN: https://ssrn.com/abstract=285757

Christoph Lülfesmann (Contact Author)

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

Anke S. Kessler

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

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
604-291-3443 (Phone)
604-291-5944 (Fax)

University of Bonn - Economic Science Area ( email )

Adenauerallee 24-42
D-53113 Bonn
Germany
+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

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