Who should pay the bill for employee upskilling?
23 Pages Posted: 12 May 2021
Date Written: May 2021
Upskilling is an investment in human capital that allows a worker to successfully undertake a new task or new project within his/her existing job. It involves costly effort on behalf of the employee to acquire new skills and new knowledge. A firm-financed training scheme allows to screen the applicants to the programme, but comes with the cost of hidden actions, as some employees train on their own yet keep on working on low-value projects. A laissez-faire policy relying on worker self-training and incentive compatible contracts allows to attract more workers to high-value projects, yet it must grant to flexible workers a positive informational rent. The profit comparison reveals a paradoxical situation where it might be in the interest of a company to rely on worker self-training rather than to provide a training programme.
Keywords: Contract theory, Upskilling, Screening, Hidden action
JEL Classification: J33, J41, D86
Suggested Citation: Suggested Citation