Working Paper: CEPR ID: DP1124
Authors: Margaret Stevens
Abstract: This paper examines the foundations of the prediction that the costs of, and returns to, an investment in specific human capital will be shared between worker and firm, and hence that in the presence of specific human capital there will be a positive relationship between wage and tenure. It is shown that the standard model does not in fact predict such a relationship. A more precise definition of sharing is suggested, and two models are described in which sharing does arise, in response to a problem of asymmetric information.
Keywords: specific human capital; sharing; tenure; contracts
JEL Codes: J31; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| specific human capital investment (J24) | wage profiles that rise with tenure (J31) |
| asymmetric information (D82) | sharing of returns to specific human capital (J24) |
| training firm offers wage higher than external market wage (J33) | sharing hypothesis validated (C59) |
| expected second-period wage lies strictly between expected alternative wage and worker's expected value to the firm (J31) | sharing occurs (D16) |
| specific human capital investment (J24) | wage-tenure relationship (J31) |
| wage-tenure relationship (J31) | empirical observation of such a relationship in labor markets (J29) |