An Overview of the Theoretical Framework

Investments in human capital are central factors in economic performance and growth. When tastes and technologies are changing rapidly, human capital investments are important for maintaining high levels of competitiveness and employment. Without a workforce that is continually acquiring new skills, it is difficult to reap all the returns from technological progress. This chapter discusses one particular component of human capital - training, which refers to work-related training received while in employment. The orthodox human capital theory is revisited, along with the challenges hurled against it. The principal hypotheses regarding training are outlined and predictions as to who pays for general training and the returns to training (at both the training firms and at subsequent firms) are summarized. The impact of asymmetric information on the predictions of the orthodox human capital model is also considered, along with the effects of trade unions, minimum wages, product market regulation, and the tax system.