The effects of general and firm-specific training on wages and performance: evidence from banking

Abstract

By using new panel data for Finnish banks we study the impact of training on wages and performance. To the best of our knowledge, ours is the first paper to compare explicitly the effects of general and firm-specific workplace training on outcomes for both employees and firms. Unlike much existing literature, we find stronger evidence that training improves worker outcomes rather than organizational performance. Depending upon specification, the estimated wage elasticity with respect to training is in the range of 3-7%, whereas the performance effects vary widely depending on the measures of training intensity. The other key finding is that general training is associated with higher wage and performance effects than is firm-specific training. 2 I IntroductionTwo important issues are raised in most economic studies of training. First, does training increase efficiency and by how much? Second, who reaps the gains from training? In addressing these issues, the standard (Beckerian) theory concludes that in competitive markets, employers will not pay for general training. By definition, general training increases employee productivity by the same amount in the current workplace and elsewhere. If employees participate in general training, their employers have to bid up employees' wages reflecting the productivity increases due to training. If they fail to do so, other potential employers can "poach" these workers and free-ride in training expenses. Hence, according to this theory, in competitive labour markets, employers would finance training only if there are some specific elements in it. By contrast, the early empirical evidence on training revealed that employer-provided training is mostly general in nature and that, nevertheless, employers paid the costs of training (e.g. Lynch 1992; Spletzer, 1998, 1999;Barron et al. 1999).To explain this inconsistency between theory and empirics, many subsequent theorists point to imperfections in labour markets. It is argued (e.g. Acemoglu and Pischke, 1999;Manning, 2003) that search frictions, certain labour market institutions (e.g. unions, minimum wages), imperfect competition in small labour markets (Stevens 1994), or asymmetric information in training among current and potential employers may lead to situations where employees capture only a fraction of the productivity gains.These models also imply that wages do not equal marginal revenue product, and this has motivated recent literature that studies the impact of training on productivity and wages 1 .Consistent with theory grounded in imperfect labour markets, more recent empirical 1 For theoretical literature see e.g. Acemoglu and Pischke (1999) and Booth and Zoega (2004). 3 evidence on the impact of training on wages and productivity finds that there is a wedge between wages and productivity effects and that employees and employers seem to share the benefits from training. This applies both to industry levels studies (Conti 2005;Dearden et al. 2006) and firm level studies (e.g. Ballot et al. 2006). However, w...

How Employment Responds to Changes in Assets at US Banks and Credit Unions

“…Outside the US other firm level studies that find positive effects of cooperatives compared to other organizational forms include Ferri, Kalmi and Karola (2014) and Mäkinen and Jones (2015). Also, econometric case study evidence for Finnish co-operative banks (Jones, Kalmi and Kauhanen, 2012) is consistent with the hypothesis that employee members in cooperative banks are apt to have increased loyalty and lower turnover and that, in turn, this may lead to extensive training of the workforce and more accumulation of human capital. In addition, our findings complement those of others who have identified broader benefits of US credit unions.…”

“…The results reported in this paper help to bolster this alternative perspective on credit unions and cooperatives of all kinds. Jones, Kalmi and Kauhanen (2012) show that cooperative ownership structures favors human capital accumulation and improve worker outcomes (notably wages) for employee members without adverse effects to organizational performance. More broadly, the "new view" on cooperatives may help to identify their proper role-alongside with other cooperatives-in providing a valuable contribution to a piecemeal evolution towards a more democratic and stable economic order.…”

“…Evidence of the subtle ways that employee influence in co-op banks leads to different outcomes than in IOFs is apparent in various studies. Thus, Jones, Kalmi and Kauhanen (2012) report evidence on training and wages for co-op banks in Finland 3 . The websites of many US credit unions also point to the differing role of employees.…”

The Impact of Training on the Conditional Wage Distribution in Selected Service Subsectors in Malaysia

“…Their results are consistent with recent theories that explain work related training by imperfect competition in the labour market. Jones et al (2012) use panel data for Finnish co-operative banks to study the impact of training on wages and performance. They find stronger evidence that training improves worker outcomes rather than organizational performance.…”

Estimating Cross-Country Investment in Training

“…While theory predicts that the earnings elasticity of general training should be higher than that of specific training, Loewenstein and Spletzer (1999) for the United States, and more recently Jones et al (2012) for Finland, find that general and specific training tend to have similar returns.…”