Uncertainty in Labor Productivity and Specific Human Capital Investment

39 Pages Posted: 6 Dec 2001

See all articles by Chong-En Bai

Chong-En Bai

The University of Hong Kong - School of Economics and Finance; University of Michigan - William Davidson Institute

Yijiang Wang

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: November 2001

Abstract

The degree of uncertainty in a worker's productivity is affected by many factors, such as worker-employer matching, technology, and macroeconomic conditions. Not surprisingly, uncertainty in labor productivity (ULP) varies across firms, industries, and economies. The question arises: How do variations in ULP affect specific human capital (SHC) investment, wage, and labor turnover? We use a model of fixed wage contracts to show that greater ULP can lead to either a higher or lower SHC investment, wage offer, and probability of separation, depending on the initial level of ULP. Wage and SHC are always positively correlated, but SHC investment and labor turnover do not have a monotonic relationship. These results have implications for empirical studies and public policies affecting ULP.

Keywords: Uncertainty, Specific Human Capital, Wage, Turnover

JEL Classification: J24, J41

Suggested Citation

Bai, Chong-En and Wang, Yijiang, Uncertainty in Labor Productivity and Specific Human Capital Investment (November 2001). Available at SSRN: https://ssrn.com/abstract=292900 or http://dx.doi.org/10.2139/ssrn.292900

Chong-En Bai (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong
(852) 2859-1036 (Phone)
(852) 2548-1152 (Fax)

University of Michigan - William Davidson Institute ( email )

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Yijiang Wang

University of Minnesota - Twin Cities - Carlson School of Management ( email )

321 19th Avenue South
Industrial Relations Center
Minneapolis, MN 55455
United States
612-624-6814 (Phone)
612-624-8360 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
243
Abstract Views
1,677
rank
183,946
PlumX Metrics