Financing On-The-Job Training: Shared Investment or Promotion Based System? Evidence from Germany

Though the shared investment hypothesis of human capital theory, i.e. that employers and employees share the costs of and the return on investment in firm-specific human capital, is widely accepted, we know little about the empirical evidence. The paper shows that in German data (1984-1991) there is no empirical evidence for the shared investment hypothesis. Rather we observe that employers use career ladders to protect one-sided investments against opportunistic bargaining. In contrast to these shortcomings we find convincing evidence for human capital theory, analysing the effects of on-the-job training itself on subsequent job mobility, career ladders and wage growth.