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Equilibrium Contracts and Firm-sponsored Training

  • Pontus Rendahl

This paper studies a model of firm-sponsored investments in general human capital. When institutional settings permit simple contractual arrangements that are consistent with at-will employment, firms invest in a worker's general skills. And when market forces discipline contracts, the equilibrium level of training intimately relates to any match-specific component of surplus, such as mobility costs. If these relation-specific components are sufficiently large, all externalities may be internalized, and training attains the social optimum. In marked contrast to the existing literature, these predictions do not rely on complementarities between training and rents (e.g. “wage-compression"), and they are independent of the distribution of profits and wages.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1336.

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Date of creation: 07 Oct 2013
Date of revision:
Handle: RePEc:cam:camdae:1336
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  1. Picchio, M. & van Ours, J.C., 2010. "Market Imperfections and Firm-Sponsored Training," Discussion Paper 2010-57, Tilburg University, Center for Economic Research.
  2. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Katz, Eliakim & Ziderman, Adrian, 1990. "Shared investment in general training : the role of information," Policy Research Working Paper Series 535, The World Bank.
  4. Joseph G. Altonji & Nicolas Williams, 2005. "Do wages rise with job seniority? A reassessment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 58(3), pages 370-397, April.
  5. Goux, Dominique & Maurin, Eric, 2000. "Returns to firm-provided training: evidence from French worker-firm matched data1," Labour Economics, Elsevier, vol. 7(1), pages 1-19, January.
  6. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  7. Brunello, Giorgio & Gambarotto, Francesca, 2007. "Do spatial agglomeration and local labor market competition affect employer-provided training? Evidence from the UK," Regional Science and Urban Economics, Elsevier, vol. 37(1), pages 1-21, January.
  8. Chang, Chun & Wang, Yijiang, 1996. "Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 505-19, July.
  9. John M. Barron & Mark C. Berger & Dan A. Black, 1997. "On-the-Job Training," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ojt.
  10. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-97, June.
  11. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1989. "Job Matching and On-the-Job Training," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 1-19, January.
  12. Harley Frazis & Maury Gittleman & Mary Joyce, 2000. "Correlates of training: An analysis using both employer and employee characteristics," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 53(3), pages 443-462, April.
  13. Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, vol. 86(3), pages 478-501, June.
  14. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-37, September.
  15. Felipe Balmaceda, 2005. "Firm-Sponsored General Training," Journal of Labor Economics, University of Chicago Press, vol. 23(1), pages 115-134, January.
  16. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  17. Kessler, Anke & Lülfesmann, Christoph, 2000. "The Theory of Human Capital Revisited: On the Interaction of General and Specific Investments," CEPR Discussion Papers 2533, C.E.P.R. Discussion Papers.
  18. Loewenstein, Mark A & Spletzer, James R, 1998. "Dividing the Costs and Returns to General Training," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 142-71, January.
  19. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
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