On the Information-Gathering Role of Firm-Sponsored Training for New Hires

According to Becker's human-capital theory, employers tend to underinvest in general training relative to specific training because it increases their existing employees' outside opportunities. We show that this is not necessarily true if training has an information-gathering function that allows an agent to learn his skills. An example is the training of new hires. When training creates an information asymmetry between the principal and the agent, the principal may overinvest in general training relative to specific training. General training helps the principal reduce the incentive problem inside the firm. Becker's result of underinvestment in general training may not hold when training creates asymmetric information.