Training and Effort Dynamics in Apprenticeship

Abstract

A principal specifies time paths of knowledge transfer, effort provision, and task allocation for a cash-constrained apprentice, who is free to walk away at any time. In the optimal contract the apprentice pays for training by working for low or no wages and by working inefficiently hard. The apprentice can work on both knowledge-complementary and knowledge-independent tasks. We study how the nature of the production technology influences the length of the optimal contract and its mix of effort types, and discuss the effect of regulatory limits on how hard the apprentice can work and how long the apprenticeship can last.