IDEAS home Printed from https://ideas.repec.org/p/ifs/ifsewp/05-16.html
   My bibliography  Save this paper

The impact of training on productivity and wages: evidence from British panel data

Author

Listed:
  • Lorraine Dearden

    (Institute for Fiscal Studies and University College London)

  • Howard Reed

    (Institute for Fiscal Studies)

  • John Van Reenen

    (Institute for Fiscal Studies)

Abstract

It is standard in the literature on training to use wages as a sufficient statistic for productivity. This paper examines the effects of work-related training on direct measures of productivity. Using a new panel of British industries 1983-1996 and a variety of estimation techniques we find that work-related training is associated with significantly higher productivity. A one percentage point increase in training is associated with an increase in value added per hour of about 0.6% and an increase in hourly wages of about 0.3%. We also show evidence using individual level datasets that is suggestive of training externalities.

Suggested Citation

  • Lorraine Dearden & Howard Reed & John Van Reenen, 2005. "The impact of training on productivity and wages: evidence from British panel data," IFS Working Papers W05/16, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:05/16
    as

    Download full text from publisher

    File URL: http://www.ifs.org.uk/wps/wp0516.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hellerstein, Judith K & Neumark, David, 1999. "Sex, Wages, and Productivity: An Empirical Analysis of Israeli Firm-Level Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 95-123, February.
    2. Emmanuel Delame & Francis Kramarz, 1997. "Entreprises et formation continue," Économie et Prévision, Programme National Persée, vol. 127(1), pages 63-82.
    3. Booth, Alison L, 1991. "Job-Related Formal Training: Who Receives It and What Is It Worth?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(3), pages 281-294, August.
    4. Alan Barrett & Philip J. O'Connell, 2001. "Does Training Generally Work? The Returns to in-Company Training," ILR Review, Cornell University, ILR School, vol. 54(3), pages 647-662, April.
    5. Van Reenen, John & Dearden, Lorraine & Reed, Howard, 2000. "Who Gains when Workers Train? Training and Corporate Productivity in a Panel of British Industries," CEPR Discussion Papers 2486, C.E.P.R. Discussion Papers.
    6. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June.
    7. Jones, Patricia, 2001. "Are educated workers really more productive?," Journal of Development Economics, Elsevier, vol. 64(1), pages 57-79, February.
    8. Booth, Alison L & Francesconi, Marco & Zoega, Gylfi, 1999. "Training, Rent-Sharing and Unions," CEPR Discussion Papers 2200, C.E.P.R. Discussion Papers.
    9. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    10. Lorraine Dearden & Howard Reed & John Van Reenen, 2006. "The Impact of Training on Productivity and Wages: Evidence from British Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(4), pages 397-421, August.
    11. Daron Acemoglu & Jörn-Steffen Pischke, 2003. "Minimum Wages And On-The-Job Training," Research in Labor Economics, in: Worker Well-Being and Public Policy, pages 159-202, Emerald Group Publishing Limited.
    12. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863, Elsevier.
    13. Black, Sandra E & Lynch, Lisa M, 1996. "Human-Capital Investments and Productivity," American Economic Review, American Economic Association, vol. 86(2), pages 263-267, May.
    14. David Blanchflower & L Lynch, 1992. "Training at Work: A Comparison of US and US and British Youths," CEP Discussion Papers dp0078, Centre for Economic Performance, LSE.
    15. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2003. "Fifty Years of Mincer Earnings Regressions," NBER Working Papers 9732, National Bureau of Economic Research, Inc.
    16. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    17. Haskel, Jonathan, Sonia Pereira, 2003. "Skills and productivity in the UK using matched establishment and worker data," Royal Economic Society Annual Conference 2003 100, Royal Economic Society.
    18. Sandra E. Black & Lisa M. Lynch, 2001. "How To Compete: The Impact Of Workplace Practices And Information Technology On Productivity," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 434-445, August.
    19. Stephen Machin & John Van Reenen, 1998. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1215-1244.
    20. Krueger, Alan & Rouse, Cecilia, 1998. "The Effect of Workplace Education on Earnings, Turnover, and Job Performance," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 61-94, January.
    21. repec:bla:scandj:v:94:y:1992:i:0:p:s29-47 is not listed on IDEAS
    22. Hellerstein, Judith K & Neumark, David & Troske, Kenneth R, 1999. "Wages, Productivity, and Worker Characteristics: Evidence from Plant-Level Production Functions and Wage Equations," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 409-446, July.
    23. Zvi Griliches, 1998. "The Search for R&D Spillovers," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 251-268, National Bureau of Economic Research, Inc.
    24. Ann P. Bartel & Nachum Sicherman, 1999. "Technological Change and Wages: An Interindustry Analysis," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 285-325, April.
    25. Gérard Ballot & Fathi Fakhfakh & Erol Taymaz, 2006. "Who Benefits from Training and R&D, the Firm or the Workers?," British Journal of Industrial Relations, London School of Economics, vol. 44(3), pages 473-495, September.
    26. Booth, Alison L, 1993. "Private Sector Training and Graduate Earnings," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 164-170, February.
    27. Daron Acemoglu & Joshua Angrist, 1999. "How Large are the Social Returns to Education? Evidence from Compulsory Schooling Laws," NBER Working Papers 7444, National Bureau of Economic Research, Inc.
    28. Torbjorn Hacgeland & Tor Jakob Klette, 1999. "Do Higher Wages Reflect Higher Productivity? Education, Gender and Experience Premiums in a Matched Plant-Worker Data Set," Contributions to Economic Analysis, in: The Creation and Analysis of Employer-Employee Matched Data, pages 231-259, Emerald Group Publishing Limited.
    29. Ann P. Bartel, 1992. "Training, Wage Growth and Job Performance: Evidence From a Company Database," NBER Working Papers 4027, National Bureau of Economic Research, Inc.
    30. Bartel, Ann P, 1995. "Training, Wage Growth, and Job Performance: Evidence from a Company Database," Journal of Labor Economics, University of Chicago Press, vol. 13(3), pages 401-425, July.
    31. Winkelmann, Rainer, 1994. "Training, Earnings and Mobility in Germany," CEPR Discussion Papers 982, C.E.P.R. Discussion Papers.
    32. David G. Blanchflower & Lisa M. Lynch, 1994. "Training at Work: A Comparison of U.S. and British Youths," NBER Chapters, in: Training and the Private Sector: International Comparisons, pages 233-260, National Bureau of Economic Research, Inc.
    33. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    34. Yannick Carriou & François Jeger, 1997. "La formation continue dans les entreprises et son retour sur investissement," Économie et Statistique, Programme National Persée, vol. 303(1), pages 45-58.
    35. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1989. "Job Matching and On-the-Job Training," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 1-19, January.
    36. Greenhalgh, Christine & Stewart, Mark, 1987. "The Effects and Determinants of Training," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(2), pages 171-190, May.
    37. Casey Ichniowski & Kathryn Shaw & Giovanna Prennushi, 1995. "The Effects of Human Resource Management Practices on Productivity," NBER Working Papers 5333, National Bureau of Economic Research, Inc.
    38. Lynch, Lisa M, 1992. "Private-Sector Training and the Earnings of Young Workers," American Economic Review, American Economic Association, vol. 82(1), pages 299-312, March.
    39. Andy Green & Hilary Steedman, 1997. "Into The 21st Century: An Assessment Of British Skill Profiles And Prospects," CEP Reports 06, Centre for Economic Performance, LSE.
    40. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    41. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    42. Ballot, Gerard & Fakhfakh, Fathi & Taymaz, Erol, 2001. "Firms' human capital, R&D and performance: a study on French and Swedish firms," Labour Economics, Elsevier, vol. 8(4), pages 443-462, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jozef Konings & Stijn Vanormelingen, 2015. "The Impact of Training on Productivity and Wages: Firm-Level Evidence," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 485-497, May.
    2. Almeida, Rita & Carneiro, Pedro, 2009. "The return to firm investments in human capital," Labour Economics, Elsevier, vol. 16(1), pages 97-106, January.
    3. John Van Reenen, 2000. "Who gains when workers train? Training and corporate productivity in a panel of British industries," IFS Working Papers W00/04, Institute for Fiscal Studies.
    4. Gérard Ballot & Fathi Fakhfakh & Erol Taymaz, 2002. "Who benefits from training and R&D: The firm or the workers? A study on panels of French and Swedish firms," ERC Working Papers 0201, ERC - Economic Research Center, Middle East Technical University, revised Jan 2002.
    5. Carmichael, Fiona & Ercolani, Marco & Kang, Lili & Maimaiti, Yasheng & O'Mahony, Mary & Peng, Fei & Robinson, Catherine, 2009. "Training, education and productivity," MPRA Paper 39899, University Library of Munich, Germany.
    6. Anthony Terriau, 2018. "Occupational mobility and vocational training over the life cycle," Working Papers halshs-01878925, HAL.
    7. Yanick Labrie & Claude Montmarquette, 2005. "La formation qualifiante et transférable en milieu de travail," CIRANO Project Reports 2005rp-04, CIRANO.
    8. repec:lic:licosd:24409 is not listed on IDEAS
    9. Giorgio Brunello & Maria De Paola, 2004. "Market Failures and the Under-Provision of Training," CESifo Working Paper Series 1286, CESifo.
    10. Conti, Gabriella, 2005. "Training, productivity and wages in Italy," Labour Economics, Elsevier, vol. 12(4), pages 557-576, August.
    11. Addison, John T. & Belfield, Clive R., 2007. "Unions, training and firm performance," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 40(4), pages 361-381.
    12. Dan A. Black & Lars Skipper & Jeffrey A. Smith & Jeffrey Andrew Smith, 2023. "Firm Training," CESifo Working Paper Series 10268, CESifo.
    13. Addison, John T. & Belfield, Clive R., 2007. "Unions, training and firm performance," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 40(4), pages 361-381.
    14. Morikawa, Masayuki, 2021. "Employer-provided training and productivity: Evidence from a panel of Japanese Firms," Journal of the Japanese and International Economies, Elsevier, vol. 61(C).
    15. Christophe Muller & Christophe J. Nordman, 2017. "Wages and on-the-job training in Tunisia," Middle East Development Journal, Taylor & Francis Journals, vol. 9(2), pages 294-318, July.
    16. Pfeifer, Christian & Janssen, Simon & Yang, Philip & Backes-Gellner, Uschi, 2011. "Effects of Training on Employee Suggestions and Promotions in an Internal Labor Market," IZA Discussion Papers 5671, Institute of Labor Economics (IZA).
    17. William Collier & Francis Green & Young-Bae Kim & John Peirson, 2011. "Education, Training and Economic Performance: Evidence from Establishment Survival Data," Journal of Labor Research, Springer, vol. 32(4), pages 336-361, December.
    18. Liu, Qing & Lu, Ruosi, 2016. "On-the-job training and productivity: Firm-level evidence from a large developing country," China Economic Review, Elsevier, vol. 40(C), pages 254-264.
    19. Brunello, Giorgio & Comi, Simona Lorena & Sonedda, Daniela, 2010. "Training Subsidies and the Wage Returns to Continuing Vocational Training: Evidence from Italian Regions," IZA Discussion Papers 4861, Institute of Labor Economics (IZA).
    20. Bassanini, Andrea & Booth, Alison L. & Brunello, Giorgio & De Paola, Maria & Leuven, Edwin, 2005. "Workplace Training in Europe," IZA Discussion Papers 1640, Institute of Labor Economics (IZA).
    21. Angel de la Fuente & Antonio Ciccone, 2003. "Human capital in a global and knowledge-based economy," UFAE and IAE Working Papers 562.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).

    More about this item

    Keywords

    Productivity; training; wages; panel data;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ifs:ifsewp:05/16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emma Hyman (email available below). General contact details of provider: https://edirc.repec.org/data/ifsssuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.