IDEAS home Printed from https://ideas.repec.org/p/ifs/cemmap/21-05.html
   My bibliography  Save this paper

The return to firm investment in human capital

Author

Listed:
  • Rita Almeida

    (Institute for Fiscal Studies)

  • Pedro Carneiro

    () (Institute for Fiscal Studies and University College London)

Abstract

In this paper we estimate the rate of return to firm investments in human capital in the form of formal job training. We use a panel of large firms withun usually detailed information on the duration of training, the direct costs of training, and several firm characteristics such as their output,workforce characteristics and capital stock. Our estimates of the return to training vary substantially across firms. On average it is - 7% for firms not providing training and 24% for those providing training. Formal job training is a good investment for many firms and the economy, possibly yielding higher returns than either investments in physical capitalor investments in schooling. In spite of this, observed amounts of formal training are very small.

Suggested Citation

  • Rita Almeida & Pedro Carneiro, 2005. "The return to firm investment in human capital," CeMMAP working papers CWP21/05, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:cemmap:21/05
    as

    Download full text from publisher

    File URL: http://cemmap.ifs.org.uk/wps/cwp2105.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Vodopivec, Milan & Tong, Minna Hahn, 2008. "China : improving unemployment insurance," Social Protection Discussion Papers and Notes 44779, The World Bank.
    2. Rafael Rofman & Leonardo Lucchetti & Guzmán Ourens, 2010. "Pension Systems in Latin America: Concepts and Measurements of Coverage," Documentos de Trabajo (working papers) 0510, Department of Economics - dECON.
    3. Heckman, James J & Lochner, Lance & Taber, Christopher, 1998. "Tax Policy and Human-Capital Formation," American Economic Review, American Economic Association, vol. 88(2), pages 293-297, May.
    4. Almeida, Rita & Carneiro, Pedro, 2009. "The return to firm investments in human capital," Labour Economics, Elsevier, vol. 16(1), pages 97-106, January.
    5. Arulampalam, S.W. & Booth, A. & Elias, P., 1995. "Work-Related Training and Earnings Growth for Young Men in Britain," The Warwick Economics Research Paper Series (TWERPS) 440, University of Warwick, Department of Economics.
    6. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
    7. Stephen Bond & Måns Söderbom, 2005. "Adjustment Costs and the Identification of Cobb Douglas Production Functions," Economics Papers 2005-W04, Economics Group, Nuffield College, University of Oxford.
    8. 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.
    9. Wiji Arulampalam & Alison L. Booth & Mark L. Bryan, 2004. "Training in Europe," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 346-360, 04/05.
    10. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    11. 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.
    12. Edwin Leuven & Hessel Oosterbeek, 2004. "Evaluating the Effect of Tax Deductions on Training," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 461-488, April.
    13. 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.
    14. Braithwaite , Jeanine & Mont , Daniel, 2008. "Disability and poverty : a survey of World Bank poverty assessments and implications," Social Protection Discussion Papers and Notes 42754, The World Bank.
    15. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," NBER Chapters, in: Investment in Human Beings, pages 9-49, National Bureau of Economic Research, Inc.
    16. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
    17. Peracchi, Franco & Perotti, Valeria & Scarpetta, Stefano, 2007. "Informality and social protection : preliminary results from pilot surveys in Bulgaria and Colombia," Social Protection Discussion Papers and Notes 41541, The World Bank.
    18. 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.
    19. Macours, Karen & Vakis, Renos, 2010. "Seasonal Migration and Early Childhood Development," World Development, Elsevier, vol. 38(6), pages 857-869, June.
    20. Dearden, Lorraine & Reed, Howard & Van Reenen, John, 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.
    21. 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.
    22. 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.
    23. Amin, Mohammad, 2009. "Labor regulation and employment in India's retail stores," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 47-61, March.
    24. Vodopivec, Milan & Arunatilake, Nisha, 2008. "Population aging and the labor market : the case of Sri Lanka," Social Protection Discussion Papers and Notes 44927, The World Bank.
    25. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318, Elsevier.
    26. Carneiro, Pedro & Hansen, Karsten T. & Heckman, James J., 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College Choice," IZA Discussion Papers 767, Institute of Labor Economics (IZA).
    27. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    28. Milazzo, Annamaria & Grosh, Margaret, 2008. "Social safety nets in World Bank lending and analytical work : FY2002 - 2007," Social Protection Discussion Papers and Notes 44730, The World Bank.
    29. 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.
    30. Jacob Mincer, 1989. "Job Training: Costs, Returns, and Wage Profiles," NBER Working Papers 3208, National Bureau of Economic Research, Inc.
    31. 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.
    32. 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.
    33. David Roodman, 2003. "XTABOND2: Stata module to extend xtabond dynamic panel data estimator," Statistical Software Components S435901, Boston College Department of Economics, revised 23 Nov 2020.
    34. Palacios, Robert, 2006. "Civil-service pension schemes around the world," MPRA Paper 14796, University Library of Munich, Germany.
    35. Alba-Ramirez, Alfonso, 1994. "Formal Training, Temporary Contracts, Productivity and Wages in Spain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(2), pages 151-170, May.
    36. Milan Vodopivec & Primoz Dolenc:, 2008. "Live Longer, Work Longer: Making It Happen in the Labor Market," Financial Theory and Practice, Institute of Public Finance, vol. 32(1), pages 65-81.
    37. Stevens, Margaret, 1994. "A Theoretical Model of On-the-Job Training with Imperfect Competition," Oxford Economic Papers, Oxford University Press, vol. 46(4), pages 537-562, October.
    38. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
    39. Barrett , Christopher B & Carter , Michael R & Ikegami , Munenobu, 2008. "Poverty traps and social protection," Social Protection Discussion Papers and Notes 42752, The World Bank.
    40. Gordon Betcherman & Niels-Hugo Blunch, 2008. "The limited job prospects of displaced workers: evidence from two cities in China," Economic Change and Restructuring, Springer, vol. 41(3), pages 187-207, September.
    41. Harley Frazis & Mark A. Loewenstein, 2005. "Reexamining the Returns to Training: Functional Form, Magnitude, and Interpretation," Journal of Human Resources, University of Wisconsin Press, vol. 40(2).
    42. Almeida, Rita & Carneiro, Pedro, 2009. "Enforcement of labor regulation and firm size," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 28-46, March.
    43. Conti, Gabriella, 2005. "Training, productivity and wages in Italy," Labour Economics, Elsevier, vol. 12(4), pages 557-576, August.
    44. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    45. 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, February.
    46. 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.
    47. 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.
    48. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
    49. Zwick, Thomas, 2004. "Employee participation and productivity," Labour Economics, Elsevier, vol. 11(6), pages 715-740, December.
    50. 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).
    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. Forteza, Alvaro, 2008. "The portability of pension rights : general principals and the Caribbean case," Social Protection Discussion Papers and Notes 46188, The World Bank.
    2. 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.
    3. Vodopivec, Milan & Arunatilake, Nisha, 2008. "Population aging and the labor market : the case of Sri Lanka," Social Protection Discussion Papers and Notes 44927, The World Bank.
    4. Almeida, Rita & Carneiro, Pedro, 2009. "Enforcement of labor regulation and firm size," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 28-46, March.
    5. 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.
    6. Woolford, Geoff, 2009. "Social protection for migrants from the Pacific Islands in Australia and New Zealand," Social Protection Discussion Papers and Notes 49174, The World Bank.
    7. Milan Vodopivec, 2013. "Introducing unemployment insurance to developing countries," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-23, December.
    8. Makhema, Mpho, 2009. "Social protection for refugees and asylum seekers in the Southern Africa Development Community (SADC)," Social Protection Discussion Papers and Notes 49168, The World Bank.
    9. 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.
    10. Koettl, Johannes, 2009. "Human trafficking, modern day slavery, and economic exploitation," Social Protection Discussion Papers and Notes 49802, The World Bank.
    11. Conti, Gabriella, 2005. "Training, productivity and wages in Italy," Labour Economics, Elsevier, vol. 12(4), pages 557-576, August.
    12. James, Estelle, 2009. "Rethinking survivor benefits," Social Protection Discussion Papers and Notes 52919, The World Bank.
    13. Benoit Dostie & Pierre Thomas Léger, 2014. "Firm-Sponsored Classroom Training: Is It Worth It for Older Workers?," Canadian Public Policy, University of Toronto Press, vol. 40(4), pages 377-390, December.
    14. Piggott, John & Sane, Renuka, 2009. "Indexing pensions," Social Protection Discussion Papers and Notes 52445, The World Bank.
    15. Ferrer, Ana M. & Riddell, W. Craig, 2009. "Unemployment insurance savings accounts in Latin America : overview and assessment," Social Protection Discussion Papers and Notes 49173, The World Bank.
    16. Milan Vodopivec & Lilijana Madjar & Primoz Dolenc, 2009. "Non-performance of the Severance Pay Program in Slovenia," Financial Theory and Practice, Institute of Public Finance, vol. 33(1), pages 89-102.
    17. Chae, ChangKyun & Chung, Jaeho, 2009. "Pre-employment vocational education and training in Korea," Social Protection Discussion Papers and Notes 52186, The World Bank.
    18. Avato, Johanna & Koettl, Johannes & Sabates-Wheeler, Rachel, 2009. "Definitions, good practices, and global estimates on the status of social protection for international migrants," Social Protection Discussion Papers and Notes 49172, The World Bank.
    19. Woo, Kye Lee, 2009. "Productivity increases in SMEs : with special emphasis on in-service training of workers in Korea," Social Protection Discussion Papers and Notes 51251, The World Bank.
    20. Maliranta, Mika & Asplund, Rita, 2007. "Training and Hiring Strategies to Improve Firm Performance," Discussion Papers 1105, The Research Institute of the Finnish Economy.

    More about this item

    Keywords

    On-the-Job Training; Panel Data; Production Function; Rate of Return;
    All these keywords.

    JEL classification:

    • 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
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    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:cemmap:21/05. See general information about how to correct material in RePEc.

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

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.