Workplace Training in Europe Andrea Bassanini (OECD – Evry) Alison Booth (ANU – Essex) Giorgio Brunello (Padova) Maria De Paola (Calabria) Edwin Leuven (CREST – Amsterdam)

By workplace training we mean: Work – related training received while in employment and after school completion (age 25-64) We exclude training received while unemployed or provided by government as active labour market policy

The Lisbon Strategy More education and training: -to foster growth -to retain competitive advantage by continuous up-skilling

Europe is heterogeneous -“low education – low training” in the Olive Belt -“high education – high training” in Scandinavia

Figure I5. Training incidence and schooling SWE

60.14 DNK GBR

FIN

training participation

FRA

NLD AUT IRL BEL ESP DEU

ITA

PRT GRC

17.38 .2

.83 % at least upper sec education

Learning begets learning A better educated labour force is associated to higher training incidence and intensity

Italy versus Finland wT Supply Italy

Supply Finland I

F

Demand Finland Demand Italy

T

Why does Finland invest more? -Higher supply of educated labour -Higher R&D expenditure and lower product market regulation

Figure I2. R&D investment and training, by country SWE

60 DNK

training participation

FIN GBR FRA

40 NLD AUT IRL BEL ESP ITA

20

DEU

PRT GRC

0

1 2 RD expenditure per GDP

3

Figure I3. Product market regulation and training, by country SWE

60

DNK

training participation

GBR

FIN FRA

40 NLD AUT IRL BEL DEU

20

ESP ITA

PRT GRC

0

2 4 product market regulation

6

A Roadmap of the Talk

-Quick review of the theory -The key facts -Do institutions matter? -The payoffs to training -Is there scope for policies?

A Quick Review of the Theory -general versus specific skills -the classical view and challanges to the orthodoxy: when labour markets are imperfect firms may invest in general training if there is wage compression

Figure 1: Wage Structure and Training Worker productivity f(τ)

Wages w(τ) = f(τ) − ∆ (τ)

0

τ

11

The Key Facts -Large cross country variation training incidence and intensity

in

-Within country variation is large -Most training is organized or paid by employers -Training decreases with age – faster in countries with lower employment rate of older workers

Chart I.1 Training participation and training intensity across countries Percentage of employees (aged 25-64 years) taking some training in one year and average annual hours per employee Hours per employee %

40 DNK

35 NZL FRA

30

NOR FIN

SWE

LUX IRL AUS NLD

25

GBR ESP

20

DEU

15

PRT BEL GRC EST ITACHE HUN

10

CAN USA

AUT SLO CZE

LIT LATBUL ROM POL

Correlation : 0.92

5 0 0

10

20

30

40

50

60

70

Training participation % Note: the data refer to the second half of the 1990s Source: OECD (2004).

Chart 2.1 Comparison of training participation rates across datasets Percentage of employees taking some training in one year Training participation (ECHP) %

70 Sweden

60 Denmark

50 Finland UK

40 30 Austria

20

Spain Belgium Ireland

10 Greece Portugal

France Netherlands

Correlation : 0.89

Italy

0 0

10

20

30

40

50

60

70

Training participation (OECD data) %

Note: ECHP data refer to 1997, OECD data to the second half of the 1990s Source: OECD (2004) and ECHP.

Chart 2.2 Training participation and training hours per participant in OECD countries Percentage of employees taking some training in one year and average annual hours per participant Hours per participant %

90 IRL

80

ESP

70

LIT

PRT GRC HUN

NZL

LUX AUS NLD

DEU

NOR

ROM LAT

60

EST AUT BEL ITACHE

POL

FIN

CAN

BUL

50

DNK

FRA

SWE

SLO CZE

GBR USA

40 30 20 Correlation : -0.08

10 0 0

10

20

30

40

50

60

70

Training participation %

Note: the data refer to the second half of the 1990s

Italy Spain

Sur

Noroeste

Noreste

Este

Comunidad de Madrid

Centro (E)

Canarias

Sud

Sicilia

Sardegna

Nord Ovest

Nord Est

Lombardia

Lazio

EmiliaRomagna

Centro (I)

Campania

Abruzzo-Molise

Panel B. Nuts 1 regions, Italy and Spain

Regional training participation (average of the country = 100) a,b

180

160

140

120

100

80

60

40

20

0

Chart 2.3. Dispersion of training participation rates in EU countries, by region (cont.) Panel A. Nuts 2 regions, selected countries Regional training participation (average of the country = 100) a,b

200 180 160 140 120 100 80 60 40 20

Finland

Portugal

Sweden

Övre Norrland

Östra Mellansverige

Västsverige

Sydsverige

Stockholm

Småland med öarna

Norra Mellansverige

Mellersta Norrland

Norte

Lisboa e Vale do Tejo

Centro (P)

Algarve

Alentejo

Väli-Suomi

Uusimaa

Pohjois-Suomi

Itä-Suomi

Etelä-Suomi (incl. Åland)

0

Chart 2.7 Training age gaps and employment rate of older workers Estimated training gap between workers aged 55-64 years and 25-34 years (in percentage of training incidence) and employment rate of individuals aged 55-64 years (in percentage) Estimated age training gap in 199770 % NLD

60 50

FRA

BEL

40

ESP

ITA

GRC

AUT FIN

30

IRL

20 PRT GBR DNK

Correlation : -0.68

10 0 20

25

Source: OECD and own calculations on ECHP data.

30

35

40

45

50

55

60

Employment rate of older workers in 1997 %

The Key Facts Continued - women receive less employer sponsored training than men when young -Training investment is counter-cyclical

The Key Facts Continued Large and innovative firms train more

Cross country variation among large and innovative firms is small Cross country differences are due to variations among small and noninnovative firms

Romania

Bulgaria

Poland

Lithuania

Latvia

Firms with less than 50 employees

Hungary

Estonia

Greece

Portugal

Italy

Slovenia

Austria

Germany

Czech Republic

Firms with 250 or more employees

Spain

EU 15

United Kingdom

Belgium

Luxembourg

Netherlands

Norway

Ireland

France

Sweden

Finland

Denmark

Panel B. Training hours

Average annual hours of employer-sponsored training per employeea Average of all firms

25

20

15

10

5

0

Chart 2.6 Training participation in innovative and non-innovative firms Share of total wage and salary employees who receive employer-sponsored traininga Firms that introduced product or process innovations

Firms that did not introduce either product or process innovations

Average

80

70

60

50

40

30

20

10

Romania

Lithuania

Latvia

Hungary

Bulgaria

Greece

Poland

Portugal

Estonia

Spain

Italy

Austria

Slovenia

Germany

Luxembourg

EU 15

Netherlands

Ireland

Belgium

Czech Republic

France

Norway

United Kingdom

Finland

Denmark

Sweden

0

Do Institutions Matter? -Union density -Share of temporary workers -EPL of regulars and irregulars -Product market regulation -Implicit tax on continuing work -Secondary school design

Figure I4. Temporary workers and training, by country SWE

60

DNK FIN

training participation

GBR FRA

40 NLD AUT IRL BEL ESP ITA

20

PRT GRC

0

10

20 % temporary workers

30

40

Figure 3.2. Training in 1997 and the employment protection of regulars in 1995 .6 Denmark Sweden Finland

training incidence - 1997

UK

.4

Austria Spain

.2

Belgium Ireland

France

Italy

Netherla

Portugal

Greece

0 1

2

3 epl regular workers

4

Figure 3.3. Training in 1997 and the employment protection for temporary workers in 1995 .6 Denmark

Sweden

Finland

training incidence - 1997

UK

.4

Austria Spain

.2

Belgium

France

Ireland Netherla

Italy

Portugal Greece

0 0

2

4 epl temporary workers

6

Table 3.1. Changes of institutional and other indicators between 1995 and 2001, by country Decreased Constant

Increased

Union density

DK, UK, SW

-

-

Employment protection of regulars

DK, SP, FL

AU, BE, FR, IR, IT,

PT

UK, SW, NL

Employment protection of temporary Share of temporary workers

DK, BE, IT, SP,

NL, FR, UK, IR,

PT, SW

GR, AU, FL

DK, IR, FL

-

BE, NL, FR, UK, GR, IT, SP, PT, AU, SW

Product market regulation

All countries

R&D expenditure on GDP

FR, UK, IT

-

DK, NL, BE, IR, GR, SP, PT, FL, SW, AU

Table 3.3. All training and time varying institutions. ECHP 1995-2001. Probit estimates. Average partial effects. Full sample Full sample Unemployment rate 0.202 0.080 (.142) (.174) Total R&D expenditure on GDP 0.135*** 0.108*** (.025) (.031) Share of temporary workers in -0.256* -0.326** total employment (.157) (.146) Union density * low extension dummy 0.465 (.376) Product market regulation -0.064** (.027) Employment protection index for -0.031* regular workers (.017) Employment protection index for -0.004 temporary workers (.006) [Aged between 50 and 59 /100] * implicit tax rate on continued work at age 60-64 Total R&D expenditure on GDP * 0.039*** less than college dummy (.006) Total R&D expenditure on GDP * -0.001 no tracking dummy (.003) Total R&D expenditure on GDP * -0.012 no tracking * less than college (.009) No tracking * less than college .004 (.015) R Squared .191 .192 Nobs 191491 191491

Full sample 0.050 (.199) 0.116*** (.033) -0.307** (.150) 0.516 (.385) -0.068** (.032) -0.034* (.019) -0.004 (.006) -0.106*** (.019) 0.041*** (.006) 0.003 (.003) -0.014 (.010) .006 (.018) .187 178941

Table 3.4. Employer provided training and time varying institutions. ECHP 1995-2001. Logistic transformation. Weighted least squares. Full sample Full sample Unemployment rate 2.819** 2.115* (1.199) (1.273) Total R&D expenditure on GDP 0.821*** 0.576* (.219) (.317) Share of temporary workers in -0.174* -0.173 total employment (.099) (.119) Union density * low extension dummy 0.004 (.029) Product market regulation -.434*** (.157) Employment protection index for -0.254** regular workers (.101) Employment protection index for -0.085** temporary workers (.036) [Aged between 50 and 59 /100] * implicit tax rate on continued work at age 60-64 Total R&D expenditure on GDP * 0.471*** no college dummy (.077) Total R&D expenditure on GDP * -0.035 no tracking dummy (.377) Total R&D expenditure on GDP * -0.223** no tracking * no college (.103) Year dummies Country dummies R Squared Nobs

Yes Yes .937 319

Yes Yes .952 319

Full sample 1.296 (1.252) 0.694** (.317) -0.171 (.109) 0.007 (.028) -0.460** (.175) -0.284*** (.101) -0.072* (.037) -0.500*** (.131) 0.536*** (.091) -0.121 (.378) -0.274*** (.112) Yes Yes .957 292

We find: -More competition in the product market is positively correlated with training investment -The diffusion of temporary contracts is negatively correlated with training. However, lower employment protection of regulars is positively correlated with training -The decline of training with age is stronger where pension systems are more generous

-No statistically significant evidence that union density in countries with low extension of union agreements matters for training -Training and R&D investment are complements -The positive correlation between R&D investment and training is lower where secondary schools are comprehensive

Deregulation and Training -Deregulation reduces rents – training falls -It favours the adoption technologies – and training

of

new

-It might favour innovation – and training -It may affect the bargaining power of workers – training increases

EPL and Training -High EPL increases bargaining power of insiders -Reduction in EPL reduces wage pressure, increases profits and training

Does training pay-off to individuals? -Fixed effects estimates often find high returns. -Some European studies find a 5-6 percent wage return to a training course, not much less than the return to a year of schooling

Table 4.2 Private returns to training. ECHP 1995-97-99-01. Denmark Netherlands Belgium France UK Ireland Italy Greece Spain Portugal Austria Finland

OLS .042*** (.005) .037** (.019) .055*** (.011) .072*** (.007) .079*** (.005) .081*** (.010) .097*** (.013) .216*** (.027) .072*** (.007) .180*** (.013) .103*** (.006) .055*** (.008)

FE .020*** (.007) -.030 (.031) .026* (.016) .000 (.013) .019* (.010) .005 (.022) .038*** (.014) .060* (.032) .017 (.012) .105*** (.025) .004 (.012) .038** (.018)

Figure 4.2 Returns to training and training incidence, by country Portugal

private returns to training - fe

.1

Greece

.05 Italy

Finland Belgium UK

Spain Ireland France

0

Denmark

Austria

Netherla

-.05 0

.2

.4 training incidence

.6

But… Recent studies which exploit credible exogenous variation in training find even smaller wage effects than FE estimates Important but and country specific

Does training pay-off to employers? We have little info on training costs and on individual productivity Some European studies indicate that productivity increases faster than wages after training

Is there scope for training policies? Training policies are widespread are they justified? On efficiency grounds? On equity grounds?

Efficiency Market failures due to market imperfections, externalities, credit constraints can generate under – provision What is the evidence that training is under-provided?

Since training costs are hardly measured, and all we know about social benefits pertains to education… It is very hard to offer an empirically grounded argument in favour of underprovision In theory, private agents can also produce over-provision.

Equity Since learning begets learning, inequality of opportunity in education can be amplified by inequal opportunities in training. If the private returns to education and training are significant, unequal access is a serious problem.

We distinguish -Differences in outcomes due individual expenditure of effort -Differences circumstances, background

due such

to

to other as parental

In the US, training partially offsets initial disadvantages

In Europe… Table 5.3.Family background and training. 1996-2001. Average partial effects. Weighted estimates. Dependent variable: workplace training. (1) (2) (3) (4) High school education -.029*** -.028*** (.006) (.006) Less than high school -.110*** -.108*** (.005) (.006) Father with high school or college .011** .025*** -.000 .008 (.005) (.005) (.006) (.006) Mother with high school or college .021*** .034*** .022*** .033*** (.006) (.006) (.006) (.006) Father with high school or college * .038*** .051*** Olive belt dummy (.013) (.014) Mother with high school or college * -.002 .003 Olive belt dummy (.012) (.013) Nobs 37492 37492 37492 37492 RSquared .146 .131 .147 .132

Especially in the Olive Belt of Europe, parental background matters for training, even conditional on attained education Training does not undo differences in educational attainments Indirect evidence of credit constraints?

A Political Economy Story? -Training policies as redistribution from the taxpayer to firms and (skilled) workers -Unskilled labour can support this if there are positive spillovers from training

Main training policies in Europe - Co-financing schemes for firms (levy/grant schemes, tax deductions, train or pay schemes) -Co-financing schemes for individuals (vouchers, learning accounts, grants) -Apprenticeships and pay-back clauses

Policy Issues -Substitution effects and deadweight losses, including cosmetic schemes -Certification -Forecasting of skill needs -Dissemination of information -Policy evaluations are almost nonexistent

How do we address equity – and social exclusion? Most training is done by firms, which are mainly concerned with profits Returns to training are lower for the less educated

Table 5.5 Private returns to training by education Average return to training Denmark Netherlands Belgium France UK Ireland Italy Greece Spain Portugal Austria Finland

.023*** -.015 .029* -.002 .028** .010 .041*** .066** .020* .143*** .010 .040**

Deviation from average for the poorly educated -.034** -.017 -.025 .031 -.053*** -.030 -.026 -.114 -.032 -.080** -.121** -.016

Some have suggested that wage subsidies may be more effective than training for the disadvantaged Education policies that increase the basic skills of the workforce should be considered

Figure 5.1 Training and PISA scores .6

training 2001 - age 25-30

DK

FL

.4 UK

BE AU

.2 SP

NL IR FR

GR

PT

IT

0 450

500 math scores PISA 2000

550

Other Policies? -Product market deregulation -Policies favouring R&D expenditure -Policies that affect the implicit tax on continuing work -Policies increasing female commitment to the labour market

Are education and training really so important? - In the US pessimistic view in the 1990s on the average quality of education and training wrt Germany and Japan – with the exception of higher education. -Yet productivity growth during 19952004 has been faster in the US

-Productivity growth was faster in Ireland, Greece and Finland than in the US, and yet only Finland can be considered a “high education – high training country”. -Perhaps the type of education and training also matters – tertiary and higher education, general versus specific skills – see Report I.