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The papers in this volume were fIrst presented at a symposium on "An Expanded Public Role in Job Training? The Issue of Market Failure in the Provision of Training. " The symposium took place in May, 1989. It was sponsored by the LaFollette Institute of Public Affairs at the University of Wisconsin, Madison. JozefRitzen, then in Madison on leave from Erasmus University in the Netherlands, organized the symposium. Subsequently he became Minister of Education and Science for the Netherlands. He asked David Stern to fInish the work of editing the papers for publication. All the papers have been revised in light of comments by discussants at the symposium, as well as subsequent comments by the editors and outside reviewers. INTRODucrroN AND OVERVIEW Jozef M. M. Ritzen Erasmus University Rotterdam Minister of Education and Science The Netherlands David Stem School of Education University of California, Berkeley Two factors are contributing to an increased interest in the training of adult employees. First, there is the present high rate of change in the technologies embodied in products and in production processes. This enhances the negative effect of the undersupply of training on economic growth. Higher levels of training would provide a more fertile environment for technological change. The second factor is the aging of the population.



Introduction and Overview

Two factors are contributing to an increased interest in the training of adult employees. First, there is the present high rate of change in the technologies embodied in products and in production processes. This enhances the negative effect of the undersupply of training on economic growth. Higher levels of training would provide a more fertile environment for technological change. The second factor is the aging of the population. Almost all industrialized countries have experienced a decrease in the birthrate in the sixties after a baby boom in the late forties and fifties. As a result, the average age of workers is increasing and will continue to do so in the next two decades. There is a good chance that, without increased training efforts, this will cause the rate of productivity increase to slow down, as older workers are likely to be less productive than younger workers.
Jozef M. M. Ritzen, David Stern

Job Training: Costs, Returns, and Wage Profiles

Using information on time costs of training and gains in wages attributable to training, I computed rates of return on training investments. The upper range of estimates based on several data sets generally exceeds the magnitudes of rates of return usually observed for schooling investments. It is not clear, however, that the difference represents underinvestment in job training.
Two methods were used to estimate total annual costs of job training in the U.S. economy, for 1958, 1976, and 1987. The “direct” calculation uses information on time spent in training and on wages. For 1976, costs so calculated amounted to 11.2% of Total Employee Compensation, which is about half of the costs of school education. In the “indirect” method, training costs were estimated from wage functions fitted to PSID data. In 1976 the direct estimate amounted to between 65% and 75% of the indirect estimate based on the wage profile. This result is consistent with a human capital interpretation of wage profiles.
The estimates indicate a slower growth of training than of school expenditures in the 1970’s. Substitution of schooling for job training is a likely cause.
This report is based on work sponsored by the National Science Foundation, grant SES-8921357, and in part by the Office of Educational Research and Improvement, U.S. Department of Education.
I am grateful to Lalith Munasinghe for research assistance, and to David Stern for editorial comments.
Jacob Mincer

Firm Financed Education and Specific Human Capital: A Test of the Insurance Hypothesis

This paper reports results from our continuing research on firm-financed education and training. Our work is motivated by Gary Becker’s formulation of general training as a public good that will not be provided by firms unless it is financed entirely by the trainees.3 So compelling was Becker’s model that for many economists the case was closed: if firms are observed to be paying, then either the training is not general or else their investment is being subsidized from trainees’ foregone wages or some other source. In place of this tautology we have been investigating whether, indeed, firms pay for training, and if so how those investments affect wages and turnover.
Michael J. Feuer, Henry A. Glick, Anand Desai

On-The-Job Training of New Hires

A growing number of commentators are pointing to employer sponsored training as a critical ingredient in a nation’s competitiveness. American employers appear to devote less time and resources to the training of entry level blue collar, clerical and service employees than employers in Genoany and Japan (Limprecht and Hayes 1982, Mincer and Higuchi 1988, Koike 1984, Noll et al 1984, Wiedemold-Fritz 1985). In the 1983 Current Population Survey, only 33 percent of workers with 1 to 5 years of tenure reported having received skill improvement training from their current employer (Hollenbeck and Wilkie 1985). Analyzing 1982 NLS-Youth data, Parsons (1984) reports that only 34 to 40 percellt of the young workers in clerical, operative, service and laborer jobs reponed that it was “very true” that “the skills [I am] learning would be valuable in getting a better job.” The payoffs to getting jobs which offer training appear to be very high, however. In Parson’s study, having a high learning job rather than a no learning job in 1979 increased a male youth’s 1982 wage rate by 13.7 percent. While the 1980 job had no such effect, the 1981 job raised wages by 7.2 percent when it was a high learning job rather than a no learning job.
John H. Bishop

Employee Training Programs in U.S. Businesses

According to a recent issue of Training Magazine. U.S. organizations with fifty or more employees spent $32 billion on formal programs for employee training and development. Although human resource managers argue that training is critical for developing a productive workforce, very little is known about how companies make decisions about budgets for formal training and whether such training increases measured labor productivity. Previous research by labor economists on employee training has focused on the impact of training on the individual’s success in the labor market, i.e. how training raises the individual’s wage and reduces the probability of a layoff. Economists have also studied why employers are more likely to train certain individuals than others, and, in particular, have shown that individuals who are expected to stay with the firm are more likely to be the recipients of training. Hence, economic research on training has been concerned with the impact of investments in training on the distribution of earnings. Likewise, research on training by industrial and organizational psychologists has been conducted at the individual level, focusing on the impact of training on the employee’s cognitive skills, work effort, and morale.
Ann P. Bartel

Firms’ Propensity to Train

This chapter considers why some firms spend a great deal of time and money to encourage continual learning by employees. The question is relevant to public policy, given the widespread belief that demands for continual learning by the workforce at large are increasing and will continue to increase. It is also relevant to ongoing research by economists seeking to understand the process of skill formation and the possible existence of market failure.
David Stern, Charles S. Benson

Training and Employment Relations in Japanese Firms

Japan’s recent emergence as a global economic power has attracted international attention to the Japanese management system.1 An important question is why and how management and labor seem to have cooperated so effectively in helping Japan achieve such a status. To shed light on this question, this paper discusses certain key features of the Japanese industrial relations and training practices and sketches a theory to help understand them.
Masanori Hashimoto

Market Failure for General Training and Remedies

In this paper we will argue that the market fails to provide the socially efficient amounts of general training. We also discuss two different forms of public intervention aimed at the provision of the second-best optimal amount of general training.
Jozef M. M. Ritzen

Nonmarket Failure in Government Training Programs

What is the rationale for the public to finance and provide job training and retraining? This question may seem out of place in light of this country’s 30-year history of federal support for training and retraining programs. Yet, the checkered history of these programs--reflected by their changing purposes, shifting organizational structures, and at best mixed results--leaves a residue of concern about them. This concern is heightened by what appear to be mounting political pressures to expand federal training programs. These pressures stem from increased attention to the collective good attributes of training and renewed emphasis on the social costs of worker displacement. For these reasons, the rationale for public support of training and retraining programs needs to be clarified.
W. Lee Hansen


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