Education, Training and Establishment Survival William Collier, Francis Green & Young-Bae Kim

2 Training and Profits: What Should We Expect in Theory? Training is beneficial but its benefits diminish after a point Training is costly Hence, there is an optimal amount of training Profitability Amount of training

3 Human Capital and Business Performance: Evidence to date Employers’ educational qualifications: positive effect on innovation capability Labour market experience: positive impact on productivity Employees’ schooling: positive impact on sophisticated product Impact on profitability (of employees’ schooling) : little (no) evidence

4 Training and Business Performance: Evidence to date Impact on employees is generally positive (pay, satisfaction and commitment) Effect on labour productivity also positive Returns to training are found to be high for a particular group of workers Benefits to training may be external to the individual trainee but internal to the organisation Impact on profitability: little evidence Lacking data on training costs and profits: often proxies such as sales growth are used or subjective measures

5 Training and Establishment Survival Establishment survival is an objective indicator of long-term profitability Hence, if training is sub-optimal more training would raise the profits of the establishment and thereby raise the chances of commercial survival Previous evidence supportive Over , a 10 percentage point increase in training of non- manual workers associated with a 0.8 percentage point reduction in the risk of closure Objectives: To update and extend this finding over To distinguish between the effects of training different sections of the workforce and between those of different industries

6 The Workplace Employment Relations Surveys The paper utilises data drawn from the Workplace Employment Relations Survey (WERS) 1998 and 2004 Series of surveys carried out on a stratified random sample of British Establishments Collects information from a range of establishment representatives Includes a random sample of 25 employees from each establishment Provides evidence about a broad range of industrial relations and employment practices

7 WERS 1998 Cross-section Survey Management Questionnaire (MQ) 2,191 establishments with 10 or more employees Enables breakdown of employment across establishments by Industry and Occupation Provides information on establishment characteristics including ownership, size, skill needs, recruitment practices, trade union representation, fair treatment at work, pay determination etc Also provides measures of formal off-the-job training to experienced employees in the largest occupational group Survey of Employees (SEQ) Random sample of 25 employees Provides information about training for which employees had been given time off from their normal duties And about highest educational qualifications of employees

8 WERS 2004 Panel Survey Retraces establishments in the 1998 Cross-section Provides an objective measure of commercial survival 1,479 workplaces selected to be traced for re-interview Remaining 712 establishments contacted by telephone to establish whether still in existence 1,906 establishments still in existence, 273 closed down, 12 could not be determined Excluding establishments for which information is incomplete or missing results in working sample of 2,062 workplaces

9 Training and Establishment Closure Incidence of Training: Whether the establishment trained its employees 76% of establishments provided training to the largest occupational group 49% of establishments provided 2 or more days of training 95% incidence of training in public sector compared to 70% In private sector Higher incidence & duration of training for non-manual employees Workplace Closure Average closure rate of 14.8% between 1998 and 2004 Private sector closure rate of 17.9% Public sector closure rate of 5.5%

10 Training and Establishment Closure

11 Employees’ Educational Attainment and Establishment Closure

12 Education, Training and Establishment Closure: Multi-variate Analysis Dependent variable is workplace closure between the 1998 & 2004 Surveys Training measures for investigation: Length of training: No training, <2 days, and 2+ days Proportion of trained employees: None, 1 to 99%, all employees Education measures: Average educational attainment of employees in the establishmt. Additional Controls: Establishment age, size, independence, proportion of part-time employees, union recognition, public sector affiliation, use of quality circles and controls for occupation, industry and region

13 Main Findings Establishments which provide training are 9 percentage points less likely to close down than non-trainers, regardless of the length in training Training providers are 10 percentage points less likely to close down than non-trainers, regardless of the proportion of employees receiving training Also a statistically significant negative effect of average educational attainment on establishment closure Other controls meaningful and broadly consistent with previous literature Similar findings for training measures derived from the Survey of Employees

14 The Effects of Education and Training on Establishment Closure (MQ)

15 The Effects of Education and Training on Establishment Closure (SEQ)

16 Additional Findings Further investigation of the impact of training by industry and occupation is supportive of the main findings However, the gains from training vary substantially across different sub-groups Evidence of sub-optimal training for Manufacturing, Construction, Wholesale/retail, Hotels/restaurants and Transport Significant negative impact of association on establishment closure for Clerical/secretarial, Craft/skilled, Personal Service, and Operative/assembly occupations

17 Conclusions Training participation has an important impact on an establishment’s chances of commercial survival But, among those that do train, more training makes little or no difference to survival chances There are some differences in the impacts of training on survival within the occupational and industrial sub- groups One interpretation is that those establishments that think about training choose the optimal (private) amount, while many of those who don’t train don’t think about it

18 Policy Implications Evidence of a negative association between training and establishment closure is supportive of the notion that establishments are under-investing in training Hence, the employer could improve long-term profitability by making a better training decision Where private underinvestment does not occur, evidence to suggest that trainers are strategic thinkers Yet in this instance, training is only optimal from the employer’s point of view (i.e. private decision making) May still need public intervention Training may have external benefits that arise through labour mobility