Human Capital Investment and Work Incentives

Matthias Kräkel

Journal of Economics & Management Strategy, 2016, vol. 25, issue 3, 627-651

Abstract: Traditional human capital theory based on the work by Gary Becker shows that firms do not invest in general human capital but offer firm‐specific training that is only useful for the training firm. I extend the traditional approach by adding two natural assumptions—workers cannot be forced to acquire new knowledge, and they exert unobservable effort to produce valuable output for their employer. I show under which conditions firms do not offer firm‐specific training but invest in general human capital, which increases the workers' outside option. This investment behavior is well in line with the documented prevalence of industry‐specific and occupation‐specific human capital over firm‐specific human capital.

Date: 2016
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