Who Should Pay the Bill for Employee Upskilling?

Abstract

Upskilling is an investment in human capital that allows a worker to successfully undertake a new task or new project within his/her existing job. It involves costly e⁄ort on behalf of the employee to acquire new skills and new knowledge. In this context, one essential question for managers is whether to invest in workersupskilling or let them pay for the investment in human capital and compensate them accordingly. Using traditional contract theory analysis, we show that the latter choice is not cost-neutral since the most exible workers benet of an informational rent. A prot comparison shows that it might be in the interest of a company to invest in worker upskilling, rather than to rely on worker self-training.