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

21 Pages Posted: 13 Oct 2006

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

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Abstract

Human capital theory distinguishes between training in general-usage and firm-specific skills. Becker (1964) argues that employers will only invest in specific training, not general training, when labour markets are competitive. The article reconsiders Becker's theory. Using essentially his framework, we show that there exists an incentive complementarity between employer-sponsored general and specific training: 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 firm-specific training. We also consider the desirability of institutionalised training programmes and the virtues of breach penalties, and discuss some empirical facts that could be explained by the theory.

Suggested Citation

Kessler, Anke S. and Lülfesmann, Christoph, The Theory of Human Capital Revisited: On the Interaction of General and Specific Investments. Economic Journal, Vol. 116, No. 514, pp. 903-923, October 2006. Available at SSRN: https://ssrn.com/abstract=937068 or http://dx.doi.org/10.1111/j.1468-0297.2006.01116.x

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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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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