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Invest in the best or compensate the weak? An empirical analysis of the heterogeneity of a firm’s provision of human capital

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Author Info

  • Samuel Muehlemann

    ()
    (University of Bern and IZA Bonn)

  • Romy Braendli
  • Stefan C. Wolter

    ()
    (University of Bern, CESifo & IZA)

Abstract

The paper aims to test whether a firm’s provision of training depends on the intake quality of trainees. While a firm may just treat each trainee equally, independent of his or her intake quality, firms may alternatively also provide more training to less able individuals or focus on the most able ones. We develop a theoretical framework that illustrates under what circumstances a firm chooses a particular training strategy. We use representative administrative survey data for more than 1400 Swiss establishments. To test our theoretical predictions about a firm’s training strategy, we apply multivariate and instrumental variable (IV) regression models. In addition, we use case study evidence from a large Swiss retailer, allowing us to analyze how different instructors in a specific firm react when confronted with apprentices of different intake qualities. We find that a firm’s training strategy depends on a trainee’s intake quality and the expected net costs of a particular training occupation. Although firms generally provide less training to less qualified trainees, we find that a firm is willing to compensate low-ability trainees with additional training when training is on average profitable in the short run. When training regulations force firms to follow an investment-oriented training strategy (net costs in the short run), then low-ability trainees will not receive additional instruction time and the dropout risk increases. Generating a regulatory framework that allows firms to achieve a net benefit from work-based training is crucial for low-ability trainees to have the opportunity to receive additional training investments that compensate for a lack of competences at the time of the start of training.

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File URL: http://repec.business.uzh.ch/RePEc/iso/leadinghouse/0086_lhwpaper.pdf
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Bibliographic Info

Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Economics of Education Working Paper Series with number 0086.

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Length: 28 pages
Date of creation: May 2013
Date of revision:
Publication status: published
Handle: RePEc:iso:educat:0086

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Related research

Keywords: Work-based training; heterogeneous trainee ability; apprenticeship training; firm-sponsored training;

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References

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  1. Edwin Leuven, 2005. "The Economics of Private Sector Training: A Survey of the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 19(1), pages 91-111, 02.
  2. Becker, Gary S & Tomes, Nigel, 1986. "Human Capital and the Rise and Fall of Families," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages S1-39, July.
  3. Lindley, Robert M, 1975. "The Demand for Apprentice Recruits by the Engineering Industry, 1951-71," Scottish Journal of Political Economy, Scottish Economic Society, vol. 22(1), pages 1-24, February.
  4. Daron Acemoglu & Jorn-Steffen Pischke, 1996. "Why Do Firms Train? Theory and Evidence," NBER Working Papers 5605, National Bureau of Economic Research, Inc.
  5. Fabian Lange, 2007. "The Speed of Employer Learning," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 1-35.
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Cited by:
  1. Uschi Backes-Gellner, 2014. "Benefits of Apprenticeship Training and Recent Challenges Ð Empirical Results and Lessons from Switzerland and Germany," Economics of Education Working Paper Series 0097, University of Zurich, Institute for Strategy and Business Economics (ISU).
  2. Samuel Muehlemann & Harald Pfeifer & Felix Wenzelmann, 2013. "The Costs of Recruiting Apprentices: Evidence from German Firm-Level Data," Economics of Education Working Paper Series 0095, University of Zurich, Institute for Strategy and Business Economics (ISU).

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