The Costs and Benefits of Workplace Training

Efficient provision requires that the marginal private and social benefits of training be equal to marginal private and social costs. Employers in imperfectly competitive labour markets are willing to bear the costs of general training if the increase in productivity after training is higher than the increase in wages. Since costs and returns to workplace training play an important role in both, it is natural to focus on the effects of training on wages and productivity, and training costs. While there is an extensive literature on the social returns to schooling, little is known on the size of externalities associated with training. The extensive literature that has documented the relation between human capital and income, both at the individual and at the national level, leaves little doubt that investments in human capital are crucial for economic well being. Many of these investments take place both in the household and in the educational system but substantial investment in human capital takes place after entry into the labour market. However, most of the existing literature that considers returns to human capital has focused on schooling.