Market Failure in Training? : New Economic Analysis and Evidence on Training of Adult Employees

The papers in this volume were fIrst presented at a symposium on "An Expanded Public Role in Job Training? The Issue of Market Failure in the Provision of Training. " The symposium took place in May, 1989. It was sponsored by the LaFollette Institute of Public Affairs at the University of Wisconsin, Madison. JozefRitzen, then in Madison on leave from Erasmus University in the Netherlands, organized the symposium. Subsequently he became Minister of Education and Science for the Netherlands. He asked David Stern to fInish the work of editing the papers for publication. All the papers have been revised in light of comments by discussants at the symposium, as well as subsequent comments by the editors and outside reviewers. INTRODucrroN AND OVERVIEW Jozef M. M. Ritzen Erasmus University Rotterdam Minister of Education and Science The Netherlands David Stem School of Education University of California, Berkeley Two factors are contributing to an increased interest in the training of adult employees. First, there is the present high rate of change in the technologies embodied in products and in production processes. This enhances the negative effect of the undersupply of training on economic growth. Higher levels of training would provide a more fertile environment for technological change. The second factor is the aging of the population. This book deals with on-the-job training (OJT) of employees. Given fast-changing technology and an aging labor force, many industrialized countries must consider whether a sufficient amount of investment is being undertaken. The papers in this volume offer new evidence on the amount of OJT that occurs, and a re-examination of standard economic theory. One key assumption in former research was that employees themselves would absorb the cost of "general" training, i.e., OJT that produces portable skills or knowledge. However, that assumption remained empirically untested. New surveys that have measured OJT directly now permit testing of this assumption. Results, as reported in several chapters of this book, fail to confirm this assumption. It appears that employers are not able, in fact, to "sell" OJT to employees. Markets therefore do not provide enough OJT. Even if employees do absorb some of thecost of their own training, they may not buy enough of it, because the risk associated with such investment cannot be hedged or insured. New proposals are presented to address this problem. Learning in workplaces includes solving problems and improving the productive process. Some chapters in this book describe the features of organizations where such learning occurs. Externalities associated with certain of these features, in particular employment security, may also give rise tomarket failure Front Matter....Pages I-VII Introduction and Overview....Pages 1-14 Job Training: Costs, Returns, and Wage Profiles....Pages 15-39 Firm Financed Education and Specific Human Capital: A Test of the Insurance Hypothesis....Pages 41-59 On-The-Job Training of New Hires....Pages 61-98 Employee Training Programs in U.S. Businesses....Pages 99-134 Firms’ Propensity to Train....Pages 135-151 Training and Employment Relations in Japanese Firms....Pages 153-183 Market Failure for General Training and Remedies....Pages 185-213 Nonmarket Failure in Government Training Programs....Pages 215-233 Back Matter....Pages 235-235 The objective of this series is to report on new developments in the broad field of modern economics. Special emphasis is to be given to the publication of new research results, be it in the classical areas of economics or in newly developed ones