Cost-Sharing of General and Specific Training with Depreciation of Human Capital

The paper demonstrates that in a two-period model with imperfect capital markets firms will share the costs and returns of general training if human capital depreciates over time. Analyzing the firm's choice of the level of investment and the sharing-rule, it is shown that in spite of cost-sharing there will be an inefficient provision of general training: firms will economize on training in order to reduce workers' expected gain from quitting. If training is both general and firm-specific, overinvestment in firm-specific training will result.