The impact of training effort and training costs on firm productivity

Recent studies have shown that human resource management practices like training, participation or incentive compensation significantly contribute to firm performance (see e.g. Zwick, 2006; Bartel, 2000; Black and Lynch, 1998; Ichniowski, Shaw and Prennushi, 1997; Huselid, 1995). Although the human capital of the firm is not explicitly shown on the balance sheet, the value of the firm is at least in part driven by the value of the people who run the show. In this era of knowledge and information, continuous education and training of workers and employees is no longer an option but a must for most firms. This paper looks at the possible relation between employer provided training and firm performance for a sample of over 10 000 large Belgian firms. We first estimate a standard Cobb-Douglas production function to assess the firms’ expected performance based on the input of capital and labour. Our results show that the extent to which a firm performs either better or worse than expected, can partly be explained by the relative number of workers or employees that participate in employer provided formal training or education programs. In addition, training costs seem to have an impact as well. However, the effect of the participation rate in training is stronger than the effect of the amount that is spent per person. This implies that targets set by international or local governments should focus first on training participation rather than on training costs in relation to total wages. With this finding, we contribute to this field of research in two ways. First, our data are taken from the published financial statements. This allows us to work with auditor certified information that is available for all firms. Second, we include training costs in the analysis.