Matching and competition for human capital

A simple model of discretionary worker investment in human capital is devel oped in which worker productivity is affected by a firm-specific match and employers bid strategically for workers. The labor market returns a share o f specific capital productivity to workers without Nash bargaining power an d without recourse to long-term contracts, because efficient turnover trans forms a worker's former employers into her outside options. When the cost o f specific investment falls, wage profiles become less steep and turnover i s reduced. Perversely, an increase in the probability of turnover increases the (privately) optimal investment in specific capital. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: J24; J31.