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Title: Training and Effort Dynamics in Apprenticeship

Author(s): Drew Fudenberg and Luis Rayo

Publication Date: July 2017

Keyword(s):

Programme Area(s): Industrial Organization and Labour Economics

Abstract: We study the design of careers by a principal who trains a cash-constrained agent, or apprentice, who is free to walk away at any time. The principal specifies time paths of knowledge transfer, effort provision, and task allocation, subject to the apprentice's continued participation. In the optimal contract, the apprentice pays for training by working for low or no wages and working inefficiently hard. The apprentice can work on both "skilled" (knowledge-complementary) and "unskilled" (knowledge-independent) tasks. If the principal specifies inefficiently much skilled effort at any time, she shortens the apprenticeship compared to its length when skilled effort is efficient. Otherwise, she specifies inefficiently much unskilled effort throughout and leaves the apprenticeship length unchanged. We then consider the effect of regulations that limit how hard the apprentice can work and how long the apprenticeship can last.

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Bibliographic Reference

Fudenberg, D and Rayo, L. 2017. 'Training and Effort Dynamics in Apprenticeship'. London, Centre for Economic Policy Research. http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12126