Www.kent.ac.uk Education, Training and Establishment Survival William Collier, Francis Green & Young-Bae Kim.

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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

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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

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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 1990-1998, 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 1998-2004 To distinguish between the effects of training different sections of the

workforce and between those of different industries

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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

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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

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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

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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%

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Training and Establishment Closure

0%

5%

10%

15%

20%

25%

30%

No Training Less than 2 days 2 days or more

Clo

sure

(w

eigh

ted

%)

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Employees’ Educational Attainment and Establishment Closure

0

5

10

15

20

25

None o

f the f

ollowing

CSE/GCSE(d-

g)

O level

/GCSE(a- c)A le

vel

Degree

Postgrad

uate

Clo

sure

(w

eig

hted %

)

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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

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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

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

Dependent Variable Establishment Closure between 1998 and 2004 (0/1)

(1) (2) (3) (4) (5)

Training: less than 2 days -0.124 -0.087

(3.56)^ (3.85)^

Training: 2 or more days -0.130 -0.091

(3.49)^ (3.56)^

Training: 1 to 99% of employees -0.121 -0.098

(3.28)^ (3.72)^

Training: 100% of employees -0.148 -0.095

(4.38)^ (4.57)^

Educational Qualification -0.034 -0.044 -0.046

(1.73)* (2.80)^ (2.93)^

Pseudo R2 0.0398 0.0480 0.0086 0.2648 0.2664

Sample Size 2030 2062 1694 1649 1672

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

Dependent Variable Establishment Closure between 1998 and 2004 (0/1)

(1) (2) (3) (4) (5)

Training: less than 2 days -0.079 -0.033

(0.80) (0.47)

Training: 2 or more days -0.246 -0.127

(1.80)* (1.39)

Training: Proportion of employees -0.223 -0.089

(3.42)^ (1.55)

Educational Qualification -0.033 -0.055 -0.055

(1.59) (2.74)^ (2.66)^

Pseudo R2 0.0181 0.0351 0.0079 0.2263 0.2250

Sample Size 1607 1607 1607 1586 1586

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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

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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

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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