A Question Almost All My Labor Students Got Right
Even famous economists occasionally tell me that, “Firms have no incentive to train workers in general job skills.” The argument: Once firms teach workers general job skills, the newly-trained workers can immediately threaten to quit unless they get a raise.
Such a plausible argument! But almost all of my labor economics students can easily explain why it’s wrong. Their midterm asked:
F, and Explain: According to human
capital theory, firms have no incentive to train workers’ general skills.
A typical answer:
workers who improve their general skills can easily bargain for a raise, firms’
obvious response is to pay them a below-market wage – or even a zero wage –
during their training period.
Internships are an excellent example.
I’d like to think that my students owe this insight to my stellar teaching. But the real reason, I fear, is simply personal experience. College students today are hungry for training in general job skills – and they know that firms are ready to provide that training. All firms ask in exchange is unpaid labor – a deal that students nowadays are happy to take.