Question

3) Using Becker’s model of on-the-job training answer the following questions: (i) What is general training and who pays for general training? Use a diagram as part of the explanation. (ii) What is firm-specific training and who pays for firm-specific training? Use a diagram as part of the explanation.

Answer 1

(i) General training is training gained at firms and it raises the productivity of the workers. The training is important as all firms consider it to be valuable, for example negotiation skills of a sales man would be considered important in all the firms. That is why, the skills attained via this training are valuable for all the firms in the industry. Whether one wants to sell an aircraft or a car.

Because the skills gained from general training are valuable for all the firms, the firms do not pay for the general training as an employee can easily move away from the firm by joining a competitive firm and as the wage rate also increases wherein the firm will end up paying more wages to the workers.

(ii) Firm specific training is not useful in other firms and thus it is valuable to the specific industry. For example a workers works in a garment processing firm, this skill which s/he has gained will not be useful in any other industry/firm as the design and knowledge is limited to that firm. Thus these skills are not portable and as the skills gained are specific to that firm, the wage rate stays the same.

Thus the firm is more likely to pay for firm specific training as the skills are restricted to that particular firm and industry.

Firm sponsored training wage rate does not go up and stays at the same level. τ is the units of skill. Thus in specific training firm sponsors training.

While in general training, the wage rate moves up as the firm doesn't sponsor training and worker productivity increases which is f (τ). w (τ) is the wage rate.