Using the European Community Household Panel, we investigate gender differences in training participation over the period 1994-1999. We focus on ‘lifelong learning’, fixed-term contracts, part-time versus full-time work, public/private sector affiliation, educational attainment, and the individual’s position in the wage distribution prior to training. Women are typically no less likely than men to train. While there is no significant training-age profile for women, there is a negative profile for men. In several countries there is a negative association between fixed-term contacts and training, particularly for men. In most countries and, for both sexes, training is positively associated with public sector employment, high educational attainment and a high position in the wage distribution.
Nominally free, unrestricted training in portable computer skills is offered by the majority of U.S. temporary help supply (THS) establishments, a practice that is inconsistent with the competitive model of training. This paper asks why temporary help firms provide free general skills training. The answer proposed is that in addition to skills formation, training plays an informational role at THS firms by eliciting private information about worker ability. The model is built on the premise that training is more productive and therefore valuable to high ability workers. Firms offer a package of training and initially lower wages that induces self-selection. Workers of high perceived ability choose training in anticipation of a steeper wage profile while low ability workers are deterred by limited expected gains. Firms profit from their sunk training investment via their short-run informational advantage about ability and thereby limited monopsony power. Market competition among THS firms reduces employer rents, yielding higher wages and more training. Detailed tests of the model using representative establishment data on wages and training find strong support. The analysis demonstrates that beyond providing spot market labor, THS firms gather and sell information about worker quality to clients. The rapid growth of THS as a labor market information broker implies that the demand for worker screening is rising.
When labor markets are imperfectly competitive, firms may be willing to finance general training if the wage structure is compressed, that is, if the increase of productivity after training is greater than the increase in pay. We propose a novel way of testing this proposition, which exploits the variation in training incidence and in the training wage premium within the European Union. We compute median training wage premia in clusters of homogeneous workers and find that smaller premia induce greater (general) training incidence. Our findings are inconsistent with competitive theories of the labor market and supportive of theories of training based on imperfect competition.
This paper reviews the existing evidence on workplace training in Europe in different data sources - the CVTS, OECD data and the European Community Household Panel. We outline the differences in training incidence and relate these differences to the private costs and benefits of training, and to institutional factors such as unions, employment protection and product market competition. We ask whether there is a case for under-provision of training in Europe and examine alternative policies aiming both at raising training incidence and at reducing inequalities in the provision of skills.
We develop a simple search equilibrium model of workplace training and education based on two features. First, investment in education improves job-related learning skills and reduces training costs by firms. Second, firms with vacant skilled job slots can choose between recruitment from the market and training. Compared to Germany and Japan, the US has both a higher inflow rate into unemployment and a higher efficiency of the matching process. While the combined effect of these differences on the share of educated labor is ambiguous, the effect on the percentage of firms undertaking workplace training is to unambiguously reduce it.
There is a vast empirical literature on the effects of training on wages that are taken as an indirect measure of productivity. This paper is part of a smaller literature on the effects of training on direct measures of industrial productivity. We analyse a panel of British industries between 1983 and 1996. Training information (and other individual productivity indicators such as education and experience) is derived from a question that has been asked consistently over time in the Labour Force Survey. This is combined with complementary industry-level data sources on value added, wages, labour and capital. We use a variety of panel data techniques (including system GMM) to argue that training significantly boosts productivity. The existing literature has underestimated the full effects of training for two reasons. First, it has tended to treat training as exogenous whereas in reality firms may choose to re-allocate workers to training when demand (and therefore productivity) is low. Secondly, our estimates of the effects of training on wages are about half the size of the effects on industrial productivity. It is misleading to ignore the pay-off firms take in higher profits from training. The effects are economically large. For example, raising the proportion of workers trained in an industry by 5 percentage points (say from the average of 10% to 15%) is associated with a 4 per cent increase in value added per worker and a 1.6 per cent increase in wages.
This paper estimates the wage returns to training, paying careful attention to the choice of functional form. Both the National Longitudinal Survey of Youth (NLSY) and Employer Opportunity Pilot Project (EOPP) datasets indicate that the return to an extra hour of formal training diminishes sharply with the amount of training received. A cube root specification fits the data best, but the log specification also does well. The linear and quadratic specifications substantially understate the effect of training. If wages are not adjusted continuously, estimating the total effect of training requires that one include lagged and lead training as well as current training in the regression equation. Consequently, the NLSY is ideally suited to estimate the total return to training. We find very large returns to formal training. These returns are sharply reduced when one adjusts for heterogeneity in wage growth. Returns are reduced further when one takes into account the effect of promotions and the fact that direct costs are a substantial portion of the total cost of training. The mixed continuous-discrete nature of the training variable means that measurement error can cause estimates of the effects of short spells of training to be biased upward, but we demonstrate that the maximum upward bias in estimated returns at the geometric mean is relatively small. After correcting for confounding factors, we are left with a return to training that is several times the returns to schooling. Heterogeneity in returns explains how returns to formal training can be so high while most workers do not get formal training. In the EOPP data, the return to training is significantly higher in more complex jobs. With unobserved heterogeneity in returns, our estimates can be regarded as the return to training for the trained, but cannot be extrapolated to the untrained.
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This paper proposes a new approach to identify the wage effects of training. The idea is to narrow down the comparison group by only taking into consideration the workers who wanted to participate in training but did not do so because of some random event. The point estimate of the return to training consistently drops when restricting the comparison group this way. While the OLS estimate of the return to training participation is significantly positive, this is no longer the case when we use the new comparison group. This outcome suggests that a large share of what is usually interpreted as returns to training is actually the return to some unobservable characteristic.
Due to a tax law implemented in 1998, Dutch employers can claim an extra tax deduction when they train employees aged 40 years or older. This causes a discontinuity in a firm's cost of training an employee. We exploit this discontinuity to identify two effects: the effect of the tax deduction on training participation, and the effect of training participation on wages. We find that the training rate of workers just above 40 is about 15-20 percent higher than the training rate of workers just below 40. This difference cannot entirely be attributed to the stimulating effect of the tax deduction. Our estimates show that spill- over effects on workers younger than 40 are so substantial that the net effect of the age-dependent tax deduction is zero.
Standard economic theory predicts that firms will not invest in general train ing and will underinvest in specific training. Empirica1 evidence indicates, however, that firms do invest in general training of their workers and a1so points to no underinvestment in specific training. We propose a simple model in which a firm invests the socia1ly optima1 amounts in genera1 and specific training if the worker is sufficient1y motivated by reciprocity. A reciprocal worker may be willing to give the firm the full return on its investment. We present empirical evidence that is strongly supportive for the proposed mechanism. Workers with a high sensitivity to reciprocity have 15 percent higher training rates than workers with a low sensitivity to reciprocity.
Theory predicts that minimum wages will reduce employer-provided on-the-job training designed to improve workers' skills on the current job, but may increase the amount of training that workers obtain to qualify for a job. We estimate the effects of minimum wages on the amount of both types of training received by young workers by exploiting cross-state variation in minimum wage increases. The evidence provides considerable support for the hypothesis that higher minimum wages reduce training (especially formal training) aimed at improving skills on the current job. At the same time, there is little or no evidence that minimum wages increase training undertaken to qualify for or obtain jobs. Consequently, it appears that, overall, minimum wages substantially reduce training received by young workers.
Using data from the German Socio Economic Panel, I describe the incidence, attributes, and outcomes of continuous training received by workers in Germany between 1986 and 1989. Further training is primarily a white collar phenomenon, is concentrated among the more highly educated, and in the service sector and in public administration. Much of this training seems to be general and provided to workers by their employers at no direct cost. On the other hand, the training also does not seem to result in large short-run wage gains, especially for men. These results are somewhat at odds with the conventional models about the financing of human capital formation.
Failure in the training market may result from credit constraints and other capital market imperfections, deterring potential trainees, or labour market imperfections creating external benefits for firms. This paper presents a model of a training market affected by both problems, and examines their impact, and the impact of various policy measures, on the welfare of workers and firms. It is shown that there is a rationale for imposing training costs on firms, irrespective of the cause of under-investment. However, training levy schemes in which the levy depends upon the wage bill are shown to address capital market imperfections only.
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