Wage Returns to Training: Evidence from Finland

According to the literature, wage returns to training are likely to be positive and large, even surprisingly large, compared with the return to one year of education at a young age. The possibility of underinvestment in training is discussed in many countries, as well as in the EU. The conclusions, however, are difficult to draw, since the returns to training seem to depend on the data, the country and the model used. In this study, the return to training is estimated by means of the Finnish Adult Education Surveys of 1990, 1995 and 2000, which quite extensively include the “competing” forms of human capital. The results from the basic life cycle model show positive returns to training. The coefficient estimates suggest that one course of vocational training increases the gross hourly wage by 1.3–1.8 per cent. In a modified model with actual years of work experience and education and a measure for ability, the return to training is somewhat less, around one per cent, but still surprisingly large compared with the return to one year of education. Besides, there are results for in-service training based on the estimations over two years after the training. They reveal positive and large returns for long training spells. Taking together, the results suggest that there is underinvestment in training in Finland as well. Therefore, actions for integrating training into the system of formal degree-based system of education should be considered.