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The Impact Of Training On Productivity

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Category: Business

Autor: andrey 08 March 2011

Words: 1020 | Pages: 5

The Impact of Training on Productivity:

This paper investigates the e®ects of training on labor productiv-

ity using a unique nationally representative panel of Italian ¯rms for

the period 2002 to 2005. We ¯nd that training has a positive and

signi¯cant e®ect on productivity. Using a variety of panel estimation

techniques, we show that failing to account for unobserved heterogene-

ity leads to overestimate the impact of training on productivity, while

failing to account for endogeneity leads to substantially underestimate

it. Training also has a positive and signi¯cant impact on wages, but

this e®ect is about half the size of the e®ect on productivity. Within

occupational groups, the e®ect of training on productivity is large

and signi¯cant for blue-collars, but small and not signi¯cant for white

collars.

JEL Classi¯cation: C23, D24, J31.

Keywords: On-the-Job-Training; Productivity; Wages; Panel Data.

¤We thank Unioncamere for granting access to the Excelsior dataset. We also thank

Pietro Aimetti, Cecilia Corrado and Andrea Gianni for advice on the project and assistance

with the Excelsior data set. The views expressed are those of the authors and do not

necessarily re°ect the position of Unioncamere. The usual disclaimer applies.

yEconomics Department, University of Milan Bicocca. Piazza dell'Ateneo Nuovo 1,

20126 Milan, Italy. E-mail: emilio.colombo@unimib.it

zCorresponding author. Economics Department, University of Milan Bicocca. Piazza

dell'Ateneo Nuovo 1, 20126 Milan, Italy. E-mail: luca.stanca@unimib.it

1

1 Introduction

Human capital is widely acknowledged as a key factor for economic perfor-

mance at both the micro and macro level. Despite the fact that a large

fraction of human capital accumulation takes place after the entry into the

labor market, most of the existing literature that investigates the returns

to investment in human capital has focused on education, due to measure-

ment problems and data availability. Relatively little evidence is available,

instead, on the accumulation of human capital through the lifelong training

of workers and, more speci¯cally, on the e®ects of training on productivity.

A number of studies have tried to ¯ll this gap by analysing the impact of

training on productivity using ¯rm-level data. However, this literature does

not provide a consistent picture, as the lack of longitudinal data has generally

made it di±cult to control for unobserved heterogeneity and endogeneity of

training (e.g. Bartel, 1994, Bishop, 1994, Black and Lynch, 1996, Barrett and

O'Connell, 2001). Some recent studies have tackled this problem by focusing

on panel data at industry-level (e.g. Dearden et al., 2006, Conti, 2005). This

approach, however, does not allow to estimate the private returns to training,

as analyses based on industry-level data also capture spillover e®ects between

¯rms. There exists a recent literature that investigates the e®ects of training

on productivity using ¯rm-level panel data, but it is generally hampered

either by the speci¯city of the sample (e.g. Almeida and Carneiro, 2006),

or by the limited number of observations in the sectional dimension (Ballot

et al., 2006; Zwick, 2005, 2006) or in the time dimension (Black and Lynch,

2001).

This paper investigates the e®ects of training on productivity using a

unique nationally representative sample of Italian ¯rms in the period 2002

to 2005. Our paper contributes to the existing literature in several ways.

Our study is the ¯rst in the literature to be based on a large and nationally

representative panel data set at ¯rm-level. The availability of longitudinal

information on training and productivity allows us to deal with both unob-

served heterogeneity and endogeneity of training, using a variety of panel

estimation techniques. In addition, ¯rm-level data on training and direct

measures of productivity allow us to estimate the private returns to training

for employers, while netting out the possible spillover e®ects that may lead

to over-estimation when using industry-level data.

Second, we examine whether training has di®erent returns for employers

and employees, by comparing the e®ects of training on direct measures of

labor productivity with the results obtained from the corresponding wage

equations. We also check the robustness of the results in the baseline speci¯-

2

cation by allowing for di®erent types of labor, and by focusing on sub-samples

de¯ned on the basis of ¯rms characteristics (size, industry, region). In ad-

dition, we are able to account for the duration of training by constructing

an alternative indicator of training intensity, the average number of days of

training per worker, and comparing its e®ects on productivity with those of

the standard indicator of training intensity generally used in the literature.

Third, Italy provides a particularly interesting case study for at least two

reasons. On the one hand, it is one of the countries with the lowest incidence

of on-the-job training in Europe (Bassanini et al., 2005). It is therefore

interesting to assess to what extent this feature can a®ect the relationship

between ¯rms' training and productivity, while obtaining an indication of

the e±ciency costs implied by sub-optimal investment in training. On the

other hand, the Italian labor market is known to be characterised by severe

rigidities. Comparing the e®ect of training on productivity and wages allows

to assess the e®ect of labor market rigidities on how the returns to training

are shared between the ¯rm and the workers.

Our results indicate that increasing the share of employees participat-

ing in training activities has a positive and signi¯cant e®ect on productivity

at ¯rm-level. When training intensity increases by 1 percentage point, pro-

ductivity increases by about 0.07 per cent. Training intensity also has a

signi¯cant e®ect on wages, but using wages as an indirect measure of pro-

ductivity leads to substantially underestimate the impact of training. Within

occupational groups, training has large and signi¯cant e®ects for blue-collar

workers, while the e®ects for executives and clerks are negligible. We also

show that using an indicator of training that does not account for training

duration may lead to underestimate the e®ects of training on productivity.

More generally, the comparison of the results obtained with a variety of

panel estimators indicate that, for both the productivity and the wage equa-

tion, failing to account for unobserved heterogeneity leads to overestimate the

impact of training on productivity. However, failing to account for potential

endogeneity of training leads to underestimate its impact on productivity:

the estimated e®ect of training on productivity almost doubles when train-

ing is treated as a choice variable and the time dimension of the panel data

set is exploited to obtain appropriate instruments.

The remainder of the paper is structured as follows. Section 2 reviews the

related literature. Section 3 discusses the methodology used in our analysis.

Section 4 describes the data set. The results of the econometric analysis are

presented in section 5. Section 6 concludes with a discussion of the implica-

tions of the analysis. The data appendix provides more detailed information

on the composition and representativeness of the data set.

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