Who should pay the bill for employee upskilling?

23 Pages Posted: 12 May 2021

See all articles by Angela Sutan

Angela Sutan

Université de Bourgogne - Burgundy School of Business

Radu Vranceanu

ESSEC Business School; University of Cergy-Pontoise - THEMA

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

Sutan, Angela and Vranceanu, Radu, Who should pay the bill for employee upskilling? (May 2021). Available at SSRN: https://ssrn.com/abstract=3843614 or http://dx.doi.org/10.2139/ssrn.3843614

Angela Sutan

Université de Bourgogne - Burgundy School of Business ( email )

29 rue Sambin
Dijon, 21006

Radu Vranceanu (Contact Author)

ESSEC Business School ( email )

3, Av. Bernard Hirsch
PB 50105
Cergy-Pontoise, 95021

HOME PAGE: http://www.essec.fr

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011

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