Dividing the Costs and Returns to General Training

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Abstract
Unlike other data sets, recent interviews from the National Longitudinal Survey of Youth obtain information on who bears the explicit costs of training. The data indicate that the employer almost always pays the explicit cost of training that the worker receives on the employer's premises and often pays for the explicit costs of what appears to be off site general training. Furthermore, our wage regressions indicate that completed,spells of general training paid for by previous employers,have a larger effect on the wage,than completed,spells of general training paid for by the current employer. While these results are contrary to the conventional human capital model, we present a model that demonstrates how contract enforcement,considerations can lead to employers,paying for purely general training. An employer,in our model offers a future wage guarantee in order to provide an assurance that he will not extract excessive rents from workers who demonstrate by not quitting that they place a relatively high valuation on the employer's job. When this wage guarantee is binding, a small increase in a worker's productivity caused by an increase in his stock of human capital will not cause the employer,to pay a higher wage. This sharing of the returns to general training makes the worker less willling to pay for the training by himeself but provides the employer,with an incentive to share the cost.

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