Work

Should the firm or the employee pay for upskilling? A contract theory approach

Year: 2022

Type: article

Abstract: Upskilling involves costly effort on behalf of existing employees to acquire new skills that are required to execute high value‐added projects. A firm‐financed training scheme allows the screening of applicants but comes with the cost of hidden actions, as some employees might train themselves yet continue working on low‐value projects. A policy relying on worker self‐training and incentive compatible contracts allows attracting more workers to high‐value projects, yet it must grant a positive informational rent to flexible workers. The analysis reveals the optimal contract specific to each of the two training schemes. The profit comparison shows that the training strategy depends on how large is the net value created by upskilling, which is a characteristic of the business or industry.

Source: Managerial and Decision Economics

DOI: 10.1002/mde.3674

Authors: Radu Vranceanu, Angela Sutan

Institutions: École Supérieure des Sciences Économiques et Commerciales, Théorie Économique, Modélisation et Applications, ESSEC Business School, ESC Dijon Bourgogne, École supérieure de commerce de Dijon-Bourgogne

Language: English

Topic: Human Resource Development and Performance Evaluation

Subfield: Applied Psychology

Field: Psychology

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $2,750