Quantitative Problems

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Instructions: Some of these problems refer to the notation presented on page 183.
1.
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Suppose that training costs i = $10K and that, in the future, it generates a value V = $11K. Training is "obviously" worthwhile since the worker and firm can split the $1K = $(11 − 10) and each be better off to the tune of $500. If r = 12%, is this claim as obvious as it seems?
2.
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Suppose that . Is the training opportunity efficient? What are the worker's earnings if the investment is completely firm specific? What about if it is completely general? In each case, who pays for the investment?
3.
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Suppose that capital markets are imperfect: workers cannot borrow the funds necessary to pay for their general human capital investments. Will firms pay for them?
4.
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It is sometimes argued that firms will pay for general investments if workers are locked into the job because of mobility costs. Is this correct? (Hint: Let be the cost of switching jobs. What wage does the incumbent firm offer with and without general training?)
5.
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According to Becker's theory of general human capital, workers should cover all of their own training costs. Why? Given this, why is it the case that recent evidence suggests that employers cover a large fraction of these costs?
6.
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Trade liberalization and increased competition have arguably led to greater rates of job destruction. What is the likely effect of this change in the environment on firms' training decisions?

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