Work Practices, Incentives for Skills, and Training∗

We study a worker’s incentives to acquire skills that cannot be verified by a third party. We do this within the context of recent innovative work practices, where jobs have become more flexible. Because flexible jobs are difficult to verify by a court, standard approaches in the literature, where firms use contracts on jobs to commit to reward workers for skills, may not be feasible. We suggest an alternative approach to induce skills: firms promote workers to challenging jobs (where the returns to skills are high) only when they acquire both firm specific skills and general skills. This promotion scheme reveals information about the general skill to competing firms which in turn allows the firm to commit to reward firm specific skills. So, general training in our framework plays the same role as contracts on jobs in other papers in the literature; it helps a firm to commit to reward firm specific skills. Consistent with empirical evidence on innovative work practices, we find that firms are more likely to train workers in general skills when jobs are difficult to contract on (i.e. when jobs are flexible and job classifications are broad).