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Worker Reciprocity and Employer Investment in Training

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Listed:
  • Edwin Leuven
  • Hessel Oosterbeek
  • Randolph Sloof
  • Chris van Klaveren

Abstract

Standard economic theory predicts that firms will not invest in general training and will underinvest in specific training. Empirical evidence, however, indicates that firms do invest in general training of their workers. Evidence from laboratory experiments points to less underinvestment in specific training than theory predicts. We propose a simple model in which a firm invests the socially optimal amounts in general and specific training if the worker is sufficiently motivated by reciprocity. A reciprocal worker may be willing to give the firm a full return on its investment. We present empirical evidence that supports the proposed mechanism. Workers with a high sensitivity to reciprocity have 15% higher training rates than workers with a low sensitivity to reciprocity. Copyright (c) The London School of Economics and Political Science 2005.

Suggested Citation

  • Edwin Leuven & Hessel Oosterbeek & Randolph Sloof & Chris van Klaveren, 2005. "Worker Reciprocity and Employer Investment in Training," Economica, London School of Economics and Political Science, vol. 72(285), pages 137-149, February.
  • Handle: RePEc:bla:econom:v:72:y:2005:i:285:p:137-149
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    References listed on IDEAS

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    1. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
    2. Chung, Tai-Yeong, 1992. "On the Social Optimality of Liquidated Damage Clauses: An Economic Analysis," Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(2), pages 280-305, April.
    3. Stevens, Margaret, 1994. "A Theoretical Model of On-the-Job Training with Imperfect Competition," Oxford Economic Papers, Oxford University Press, vol. 46(4), pages 537-562, October.
    4. repec:eme:rlepps:v:18:y:1999:i:1999:p:303-330 is not listed on IDEAS
    5. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 1-9.
    6. Jörn-Steffen Pischke, 2001. "Continuous training in Germany," Journal of Population Economics, Springer;European Society for Population Economics, vol. 14(3), pages 523-548.
    7. Katz, Eliakim & Ziderman, Adrian, 1990. "Shared investment in general training : the role of information," Policy Research Working Paper Series 535, The World Bank.
    8. Steven Shavell, 1980. "Damage Measures for Breach of Contract," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 466-490, Autumn.
    9. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June.
    10. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-282, March.
    11. Kahn, Charles & Huberman, Gur, 1988. "Two-sided Uncertainty and "Up-or-Out" Contracts," Journal of Labor Economics, University of Chicago Press, vol. 6(4), pages 423-444, October.
    12. Katz, Eliakim & Ziderman, Adrian, 1990. "Investment in General Training: The Role of Information and Labour Mobility," Economic Journal, Royal Economic Society, vol. 100(403), pages 1147-1158, December.
    13. Booth, Alison L. & Bryan, Mark L., 2002. "Who Pays for General Training? New Evidence for British Men and Women," IZA Discussion Papers 486, Institute for the Study of Labor (IZA).
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    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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