Question

Hi ,I need your answer today for all parts /a/b/c/d of these question below.Br/Ha

This question is about human capital accumulation in terms of on-the-job training.

a) Define general and firm specific human capital.

b) Discuss who pays for investments in human capital that leads to general human capital and to firm specific human capital.

Answer 1

a)In human capital theory, firm specific human capital involves skills and knowledge that is valued or is useful in one specific company or industry.Eg knowing to operate a machine that the company owns and operates. General human capital is useful in all companies and industry and to all employers like knowing accounting,knowing heart transplant and knowing to design bridge etc .

b)In general human capital,firms would not like to spend on workers who might break the contract and leave the company after sometime. So expenses are borne by the worker either through up front payment or wage reduction during training.Workers are ready to finance upto the level when marginal increase in productivity and wages is equal to marginal increase in the cost of training.and the amount of training is socially efficient on condition that there is no finance problem which will stop the worker from financing the training.

If the training is firm specific, neither the company nor the worker will be ready to finance the full cost of training as both the parties will lose if they leave after training .The firm and the company will both share the cost and the benefit.With cost sharing the investment is socially efficient.