Chapter 3: Investment in Skills...
• Matching
• Investments in Education
• Effects of Costs and Benefits
• Costs
• Interest Rates
• Career Length
• Specialization of Human Capital
• Effectiveness of Learning
• W
...
Chapter 3: Investment in Skills...
• Matching
• Investments in Education
• Effects of Costs and Benefits
• Costs
• Interest Rates
• Career Length
• Specialization of Human Capital
• Effectiveness of Learning
• Was Benjamin Franklin Correct?
• Investments in On-The-Job Training
• General versus Firm-Specific Human Capital
• Special case: Intellectual Property
• Who should pay for Training?,,..
• Education
• Implicit cost to employee and benefit to employer
• Matching
• Recruiting
• Arbitrage
• On-the-job training
• General Human Capital
• Human Capital that is partly or fully firm specific
• Implications of On-the-Job training
• Turnover
• Investment
• Compensation
• Labor Market Thickness
• Firm Size
• Rent Sharing and Compensation
• Implicit Contracting
• Summary
2/26/2018 2Chapter 3 – Investment in Skills
After completing this chapter, you will be able to address the
following:
1. When should firms pay for training?
2. What is the optimum level of job training?
3. How can a firm’s reputation affect its training costs?
2/26/2018 3Investments in Education
2/26/2018 4Stay-in-School Problem
• K
i: Wage in year I with diploma
• Ji: Wage in year I without diploma
• C
0: Costs of staying in school, incurred now
• T: Total years to retirement
• r: Discount rate
2/26/2018 5Stay-in-School Problem
• Benefits from investing in human capital
• Increased future income
• Costs
• Direct costs of training
• Forgone income while training
• Future benefits and costs must be discounted for an appropriate comparison
2/26/2018 6The Wage-Schooling Relationship
• The salaries firms are willing to pay workers depend
on the level of schooling.
• Properties of the wage-schooling relationship
• The wage-schooling plot is upward-sloping
• The slope of the wage vs. schooling indicates the increase
in earnings associated with an additional year of education.
• The wage-schooling plot is concave, reflecting diminishing
returns to schooling
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