Firm-Specific Training and Contract Length
Wages subject to continuous renegotiations provide inefficient incentives for the creation of firm-specific human capital if training requires both firm investment and worker effort. Noncontingent career-long, fixed-wage contracts do not induce efficient levels of training because they award all the quasi-rents from training to the firm, leaving no incentive for trainee effort. Intermediate-length, fixed-wage contracts with known expiration dates can improve training incentives. During the life of the contract, all the quasi-rents accrue to the firm, but the trainee puts forth effort because he can appropriate future rents after the contract expires. Copyright 1990 by The London School of Economics and Political Science.
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Volume (Year): 57 (1990)
Issue (Month): 225 (February)
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