Which of the following is a distinction between general and specific human capit

Question

Which of the following is a distinction between general and specific human capital? A. General human capital consists of training and education that is valued by different firms, whereas specific human capital is more valuable to the current employer. B. General human capital enables workers to earn compensating wage differentials, whereas workers with specific human capital earn the competitive wage rate. C. General human capital leads to higher labor costs, whereas specific human capital leads to higher turnover costs. D. General human capital leads to self-selection on the basis of risk preference, whereas specific human capital leads to the adverse selection problem.

The gains from specific training in human capital tend to go to the: A. employing firm and not the individual. B. federal government in the form of higher taxes. C. individual and not the employing firm. D. parents since they paid for the education in the first place.

Explanation / Answer

1. General Human capital is a general training given to all employees and there is no difference in terms of skill set of these employees. So these guys earn almost similar wages, have similar labor costs and have adverse selection problem since everybody has same set of skills

However, Specific human capital is a type of capital defined as skills which are used only in a particular firm, i.e. specific to a particular firm. So these skills may not be useful in another firm so market value is less, labor costs are high since skill is unique, selection criteria is easier, wage rate differs since skill set differs

Based on the above explanation, only Option A is correct.
General human capital consists of training and education that is valued by different firms, whereas specific human capital is more valuable to the current employer.

2. Gains from specific training in human capital definitely benefit the employee.

Lets see if we can rule out some options,

Option A is wrong, since it says "Not an individual"

Option B is wrong, Federal Govt. does not come into picture

Option D is wrong, Parents does not come into picture

So option C is correct. Individual and not the employing firm

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