To Make or Buy (Skills): An Analysis of Training Decisions Using Microdata

The purpose of this paper is to examine the impact of skill shortages on the supply of training within New Zealand firms. The study uses a specially designed survey, the Business Strategy and Skills (BSS) module of the Business Operations Survey 2008 (BOS 2008). The paper evaluates the impact of skills shortages on the incidence and intensity of training across firms. A unique feature of the BSS module is the ability to measure differences in training intensity for three types of staff: new staff; existing staff changing roles, and existing staff for their existing roles. The paper also considers other factors, such as firm size, previous performance, its ownership, its competitive environment, and the occupational breakdown of its staff, which can impact on a firm’s decision to undertake training. We extend the analysis by including additional explanatory variables by combining the BSS module with data from other sections of the current and previous years’ BOS and the prototype Longitudinal Business Database (LBD). We use probit regression models to estimate the impact of skills shortages on the probability of a firm training staff and the proportion of staff trained, controlling for a range of employer and employee factors. We find a positive relationship between firms that report a shortage of skilled workers and the probability of firms training their staff. Among firms that train staff, we find some evidence that a shortage of skilled labour is associated with training a larger fraction of existing staff changing roles.