Trading off static efficiency and dynamic incentives in apprenticeship relations

In this paper, we study a model of on-the-job training in monopsonic environment with no enforceability and imperfect credit markets. A market equilibrium is relational contract which specifies sequence wages, productivities for the worker termination date satisfy worker's firm's incentive constraint maximize profits. We show that self-enforceable can end period total surplus from employment negative. If always positive, contracts are perpetual involve wage payment before fully trained. The expected productivity an alternative grows exactly at interest rate. For particular case Cobb-Douglas production function agent, slower higher coefficient output elasticity. effect discount rate ambiguous.