This paper examines the predictions of human capital theory in relation to on-the-job training. The analysis is based on a unique dataset from a consulting establishment and includes direct measures of profitability, training, and each employee's acquired human capital stock. Consistent with recent findings in the training literature, the present observations indicate that the employer iMarketable Human Capital Investmentss financing as well as extracting the rents from marketable human capital investments. A salary increase in connection with employer-sponsored training may function as a means of safeguarding these investments, and to a lesser extent, as a consequence of shared return.

A firm's investments in human capital (on-the-job training) differ from investments in other assets because the employee has an option to leave the firm, engage in wage bargaining and, in other ways, influence the outcome of the investment decision. Based on this disposition, Becker (1962) advanced a theory on investment in human capital. The human capital theory explains the amount invested in training while making a prediction about who should pay for the training and who will benefit from the completed training. Becker divided on-the-job training into general and specific training. General training is not only useful to the firm providing the training but to other firms as well. Because of this, employers are less inclined to invest in this type of training. In a competitive labor market, general training would lead to an increase in the wage for the employee and would offset the profit for the firm providing the training. In other words, general training increases the market value of the employee. For this reason, the theory predicts that the employee should pay for the general training by receiving wages below his or her productivity during the training period. Specific, on-the-job training, on the other hand, does not benefit other firms and, subsequently, the trainee's market value is not affected. Because specific training does not influence wages, the employee is not willing to pay for the received training. The firm thus pays for specific, on-the-job training and the increased productivity is accrued by the firm providing the training. The employer may share some of the increased productivity with the employee to prevent the trainee from leaving the firm before the specific training investment is recouped.

Theoretically, there are some alternative models and explanations as to why firms might invest in general human capital. Based on the differences in bargaining power, Glick and Feuer (1984) proposed that general training is superior to straight money payments as an insurance against personnel turnover and that firms should invest in general training to safeguard joint investments in specific training. In the shared investment model of Loewenstein and Spletzer (1998), the employer shares the general training investments with the employee as a consequence of the employer's inability to credibly commit to future wages. The employer, instead, commits to a minimum guaranteed wage and shares the investment in general training and realizes the returns to the training if the minimum wage guarantee is binding. Autor (2001) proposed a model in which firms offer general training to induce self-selection and perform screening of workers' ability. In this model, general skills training and ability are complementary, and it is assumed that workers, who are more able, self-select to receive general training to a greater extent than low ability workers. In the model of Acemoglu and Pischke (1999) firm-financed general training is a result of compressed wage structure. Wage compression makes employers more willing to invest in general training as firms extract higher rents from more skilled workers and workers with more human capital.

Soft Skills Journal, Human Capital Theory, Marketable Human Capital Investments, Investment Decision, Human Capital, Cash Flow, Programming Environment, Training Investments, Econometric Studies, Human Capital Stock, Empirical Results, Bargaining Power.