Up-or-out contracts can improve human capital investment incentives but lead to suboptimal worker-employer separation. When job matching uncertainty is large relative to the return to human capital investment, spot contracts Pareto dominate up-or-out contracts. Otherwise, up-or-out contracts are...

This article investigates how human capital investment, labor turnover, and wages are jointly determined when the current employer knows more about a worker's productivity than potential employers. Results derived are quite different from, or unexplored by, the standard human capital theory. The...