As is clear from Figure 13.1, earnings are raised both by education and experience. Learning on the job is central to the age-earnings profiles of the better educated, and is less important for those with lower levels of education. On-the-job training improves human capital through work experience. If on-the-job training increases worker productivity, who should pay for this learning - firms or workers? To understand who should pay, we distinguish between two kinds of skills: firm-specific skills that raise a worker’s productivity in a particular firm, and general skills that enhance productivity in many jobs or firms.
Firm-specific HK could involve knowing how particular components of a somewhat unique production structure functions, whereas general human capital might involve an understanding of engineering or architectural principles that can be applied universally. As for who should pay for the accumulation of skills: an employer should be willing to undertake most of the cost of firm-specific skills, because they are of less value to the worker should she go elsewhere. Firms offering general or transferable training try to pass the cost on to the workers, perhaps by offering a wage-earnings profile that starts very low, but that rises over time. Low-wage apprenticeships are examples. Hence, whether an employee is a medical doctor in residence, a plumber in an apprenticeship or a young lawyer in a law partnership, she ‘pays’ for the accumulation of her portable HK by facing a low wage when young. Workers are willing to accept such an earnings profile because their projected future earnings will compensate for lower initial earning.
On-the-job training improves human capital through
work experience.
Firm-specific skills raise a worker’s productivity
in a particular firm.
General skills enhance productivity in many jobs
or firms.
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