Adverse Selection, Short-Term Contracting, and the Underprovision of On-the-Job Training
AbstractThis article argues that the existence of adverse selection (worker heterogeneity) can explain the underprovision of general training by employers. High-ability workers value the option to entertain outside wage offers once their abilty becomes known to the market. Offering short-term contracts is, therefore, a way to screen high-ability types from low-ability types. A firm is not willing to train workers under short-term contracts. Hence, despite the positive returns to training, training may be underprovided in equilibrium. More generally, this article contributes to the literature that seeks to explain the puzzling phenomenon of short-term contracts governing long-term buyer-seller relationships.
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Bibliographic InfoPaper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt3636n9n2.
Date of creation: 01 Feb 1990
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general training; adverse selection; contract length; Social and Behavioral Sciences;
Other versions of this item:
- Hermalin Benjamin E., 2002. "Adverse Selection, Short-Term Contracting, and the Underprovision of On-the-Job Training," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 1(1), pages 1-21, July.
- Benjamin Hermalin., 1990. "Adverse Selection, Short-Term Contracting, and the Underprovision of On-the-Job Training," Economics Working Papers 90-139, University of California at Berkeley.
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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