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The economics of training

The economics of training. Is training important? Workers & firms Economy Who should pay for training? State-firm-worker The effects of training Worker Firm. What is training?. Chapman (1993)

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The economics of training

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  1. The economics of training • Is training important? • Workers & firms • Economy • Who should pay for training? • State-firm-worker • The effects of training • Worker • Firm

  2. What is training? • Chapman (1993) • ‘Training spans many boundaries, including the distinction between … on-the-job and off-the-job training, training for young workers and adult training, and formal or informal training through work experience.’ • E.g. Occupational labour markets e.g. professions • Off-the-job, formal…certificated

  3. 1. Is training important? • (a) micro level • (i) Worker – on-the-job training = investment • Age earnings profile • (ii) Firm – training increases worker productivity …. Profits? • (b) macro level • Education & training raise labour productivity • High value added goods • International competitiveness • Economic growth

  4. Training systems • (a) Britain • Low skills equilibrium • Intermediate skills problem • Relatively low educational attainment & bias to ‘academic’ • Too few young people enter vocational training or remain in FE/HE • High proportion of workers receive no training\qualifications • Skill shortages – effect on firms • (b) Germany • High skills equilibrium • Structured system of academic & vocational education & training • Multi-skilled workforce • Dual skilled

  5. 2. Who should pay for training? • Human capital theory • Training – investment decision • General skills • Raises MP of trainees by the same amount in training & non-training firms • Specific skills • No effect on MP of trainees that would be useful to other firms • Who pays • Specific = firm and worker share the cost. Why?

  6. Equilibrium Wage Value inside Wage inside 6.00 Wage outside 4.50 15 Experience 40 Age

  7. General training • Workers must bear the cost of training • Training wage: W < MP • Post-training wage: W = MP • If W < MP …. Poaching • Which type of workers choose this training? (DCF approach) • Young, committed workers • Women versus men? • Practice e.g. informational asymmetries – W<MP, firms incentive to train

  8. 3. The effects of training - evidence • (a) Firms • Productivity • Difficult to measure – case studies (NIESR) • Wage returns are a lower bound estimate • positive wage returns (see below) • Effect on productivity thus much higher • Cherry picking argument

  9. (b) Workers • (i) All training leads to positive age-earnings profile (estimation, selection) • So there are positive returns to training (in general) – direct effect (e.g.10% over 10 yrs) • (ii) Training increases the Pr(Promotion) • wage growth (indirect effect) • (iii) Training increases Pr(Employment) • ALMP & unemployed

  10. Conclusion • Training has many benefits • Workers • firms • Economy • Financing training is an important issue • State intervention? • Subsidies • ALMP

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