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

2. What is training? Chapman (1993) 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 Off-the-job, formal…certificated

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

4. Training systems (a) Britain (a) Britain –Low skills equilibrium –Intermediate skills problem Relatively low educational attainment & bias to academic Relatively low educational attainment & bias to academic Too few young people enter vocational training or remain in FE/HE Too few young people enter vocational training or remain in FE/HE High proportion of workers receive no training\qualifications High proportion of workers receive no training\qualifications –Skill shortages – effect on firms (b) Germany (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 Human capital theory –Training – investment decision General skills General skills –Raises MP of trainees by the same amount in training & non-training firms Specific skills 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? Specific = firm and worker share the cost. Why?

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

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

8. 3. The effects of training - evidence (a) Firms (a) Firms –Productivity Difficult to measure – case studies (NIESR) Difficult to measure – case studies (NIESR) Wage returns are a lower bound estimate 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) (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) (ii) Training increases the Pr(Promotion) –wage growth (indirect effect) (iii) Training increases Pr(Employment) (iii) Training increases Pr(Employment) –ALMP & unemployed

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