General Human Capital As A Shared Investment Under Asymmetric Information

This paper examines the firm's optimal wage and layoff policies in situations where only general training is provided and the firm providing training has an advantage in information over other firms. The asymmetric information among firms creates adverse selection that seriously impairs the mobility of labor and consequently affects the firm's optimal policies. General human capital is shown to have the same layoff and cost-sharing implications as firm-specific human capital. Furthermore, the contracts prespecifying rigid wages are proven to be optimal.