Occupation Specific or Generic Skills? Conflicting Interests of Firms and Apprentices

Firms and apprentices have conflicting interests with respect to the content of training programmes. On the basis of a model for the investment decision in occupation-specific and generic training, I will show that, in the case of imperfect competition, firms are not only unwilling to pay for generic training, they also want this component to be as low as possible because it decreases their expected returns to occupation-specific training. Therefore the generic component of the training will be below the social optimum. This underinvestment problem cannot always be solved by having the generic component fixed at the social optimum by an external training body. Fixing the generic component may negatively affect the level of occupation-specific training and decrease social welfare.