Career concerns and firm – sponsored general training

This article studies the provision of firm-sponsored general training in the presence of workers' career concerns. The model builds on the argument that the provision of general training reduces the employer's monopsony power. In this context, it is shown that the worker's implicit incentives to provide effort increase with the level of acquired general skills. The employer takes this reciprocal effect into account and becomes more willing to invest in general human capital. When the positive effect of training on worker's effort incentives is strong enough, the equilibrium outcome may involve overinvestment relative to the first-best. It is also shown that a sharper increase in worker's power associated with additional training may either strengthen or weaken the employer's investment incentives and can have either beneficial or detrimental effects on welfare.