A firm would be willing to pay for investment in human capital made by employees outside the firm if it could benefit from the resulting increase in productivity. The only way to pay, however, would be to offer higher wages during the investment period than would have been offered, since direct loans to employees are prohibited by assumption. When a firm gives a productive wage increase—that is, an increase that raises productivity—"outside" investments are, as it were, converted into on-the-job investments. Indeed, such a conversion is a natural way to circumvent imperfections in the capital market and the resultant dependence of the amount invested in human capital on the level of wages.