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Investment in Skills
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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 [Show More]
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