Motivation

This monograph is concerned with the analysis of human capital investment, employment and bargaining at the level of the firm. Much of the related seminal work in human capital theory has been carried out in terms of optimisation in the neoclassical firm with respect to the marginal worker. This includes the analysis of employment and other labour market implications of investments in general and specific human capital by Becker (1962) and Oi (1962) as well as Hashimoto's (1979) transaction cost model of rent sharing. The latter work points strongly to the importance of bargaining in the human capital investment decision. Despite the dominance of the ‘marginal worker approach’, the most convincing arguments as to the importance of human capital specificity derives from work that emphasises investment in a team of workers and the associated difficulty of a single worker being able to transfer group-related skills and know-how outside the firm (Oi, 1983; Aoki, 1984). The notion of bargaining over investment costs and returns combined with the view that investment is often undertaken with respect to work teams suggest quite strongly that union bargaining models may have much to offer in the development of the whole subject area. Here, we attempt the first summary of results that incorporate both team investment and employment decisions on the bargaining agenda.