Promotion, Turnover, and Discretionary Human Capital Acquisition

David Scoones and Dan Bernhardt

Journal of Labor Economics, 1998, vol. 16, issue 1, 122-41

Abstract: This article explores human capital acquisition decisions when job placement helps determine competition for a worker. With asymmetric information, workers may invest in firm-specific capital without long-term contracts. Specific investment increases promotion chances (and hence wage competition), shifting competition back to a time when firms are symmetrically uninformed. If general human capital is the efficient (output-maximizing) investment, then an equivalent firm-specific investment maximizes expected career wages. This is a general result for sellers in second-price auctions: sellers (of labor) invest to maximize the expected second-highest bidder valuation (wage), not the winner's expected valuation. Copyright 1998 by University of Chicago Press.

Date: 1998
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