An Investment Model for the Supply of Training by Employers

This paper explores the incentives faced by employers for supplying general training of the type given to craft apprentices. An investment model is developed in which the employer's return takes the form of reduced recruitment costs for skilled labor. An empirical model is derived and fitted to apprentice recruitment data for the British engineering industry, 1966-88. The model succeeds in predicting the collapse of apprentice training in the 1980s; important explanatory variables are the real interest rate and an index of skill shortages.