ECON 306 Lecture Notes - Lecture 10: Marginal Revenue Productivity Theory Of Wages, Marginal Cost, Pension
24 May 2017
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Possibility 1: firm pays all costs and gets all benefits. Problem: the worker has no incentive to stay with the training firm because he"s willing to get the untrained wage. Possibility 2: specific training as a shared investment. Specific training is a shared investment shared return so there"s an incentive to stay with the firm. During training: the alternative wage wa (wage he can get elsewhere) > wt (worker training wage) > marginal value product after training. (vmpt) Wa wt = cost to the worker. Wt vmpt = cost to training firm. Vmp* - w( is the benefit for the firm. W* - wa is the benefit to the worker. This sharing decreases the risk of either employer or employee terminating the relationship since there are benefits to both the firm and the worker. See figure 9. 6 b of the book. A more realistic view is when the training is gradual figure 9. 6 c of the book.
