DP12126 Training and Effort Dynamics in Apprenticeship

Author(s): Drew Fudenberg, Luis Rayo
Publication Date: July 2017
Keyword(s):
JEL(s):
Programme Areas: Labour Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12126

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.