Invest in the best or compensate the weak? An empirical analysis of the heterogeneity of a firm’s provision of human capital
AbstractThe 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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Bibliographic InfoPaper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Economics of Education Working Paper Series with number 0086.
Length: 28 pages
Date of creation: May 2013
Date of revision:
Publication status: published
Work-based training; heterogeneous trainee ability; apprenticeship training; firm-sponsored training;
Other versions of this item:
- Samuel Muehlemann & Romy Braendli & Stefan C. Wolter, 2013. "Invest in the best or compensate the weak?: An empirical analysis of the heterogeneity of a firm's provision of human capital," Evidence-based HRM: A Global Forum for Empirical Scholarship, Emerald Group Publishing, vol. 1(1), pages 80-95.
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- M53 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Training
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-11 (All new papers)
- NEP-BEC-2013-05-11 (Business Economics)
- NEP-HRM-2013-05-11 (Human Capital & Human Resource Management)
- NEP-LAB-2013-05-11 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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