Improving skills for more and better jobs?

Abstract

I use data from the ECHP to assess the effects of adult training on individual labour market performance. Although I find that employee training has a clear impact on wage growth only in the case of young or highly educated employees, it appears to have a stronger impact on employment security in the case of both older and low-educated workers. The contradiction is only apparent since, as standard in the literature, training wage premia are estimated on a censored sample including only employed workers. Due to the existence of downward wage rigidity, one can expect that those workers who are unable to maintain their productivity (due, for instance, to skill obsolescence) are more frequently laid–off and thereby excluded from our sample. Once foregone income due to unemployment spells is taken into account, it can be concluded that training positively affects earnings at any age and level of educational attainment. In spite of these high ex post private return, pervasive market failures justify a pro-active approach to training policy. I argue that co-financing arrangements — under which governments, employers and/or employees jointly finance training — can better leverage the required resources to upgrade the competences of those in employment. Co-financing schemes, if carefully designed, seem to be potentially effective in reducing under-provision of training — both overall and for specific groups — in a way that minimises deadweight losses, although specific programmes for the unemployed or the inactive might require full government funding.Training; wages; job security; training policy; ECHP