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The Return to the Firm Investment in Human Capital

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  • Almeida, Rita K.

    (World Bank)

  • Carneiro, Pedro

    (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 with unusually 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 capital or investments in schooling. In spite of this, observed amounts of formal training are very small.

Suggested Citation

  • Almeida, Rita K. & Carneiro, Pedro, 2006. "The Return to the Firm Investment in Human Capital," IZA Discussion Papers 1937, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1937
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    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

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