scispace - formally typeset
SciSpace - Your AI assistant to discover and understand research papers | Product Hunt

Journal ArticleDOI

Worth Waiting For? Delayed Compensation, Training and Turnover in The United States and Japan

01 Oct 1993-Journal of Labor Economics (University of Chicago Press)-Vol. 11, Iss: 4, pp 724-752

AbstractThis article utilizes a rich data set on workers and their employers in the United States and Japan to test several predictions of human capital theory. The data set incorporates both prospective and retrospective measures of turnover, includes multiple measures of training, and provides a basis for calculating plant-specific returns to tenure. Contrary to human capital theory, there is no evidence that establishments with high levels of training have either high returns to tenure or low levels of turnover. Surprisingly, establishments with high returns to tenure do not have low levels of turnover.

Summary (2 min read)

I. Introduction

  • This paper tests two basic predictions of human capital theory: (1) establishments that provide high levels of training will have high returns to tenure; and (2) establishments with high returns to tenure will have low rates of turnover.
  • These predictions are tested with a unique data set containing information on over 4000 employees of more than 80 manufacturing plants in the United States and Japan.
  • The predictions of human capital theory are not supported in either the United States or Japan.
  • Furthermore, establishments with high returns to tenure do not have low levels of turnover.
  • At the individual level, workers who report that their jobs keep them learning new things have lower intentions to quit, as predicted by human capital theory.

II. Literature Review

  • Several basic implications of the human capital model are summarized by Jacob Mincer and Yoshio Higuchi:.
  • That greater volumes of job training imply steeper wage profiles on the job and over longer work experience is a theorem in human capital analysis.
  • For firm-specific human capital, wages increase with tenure as a way to reduce turnover.
  • They find that separations are low in industries with high returns to tenure (Mincer and Higuchi, 1988: 110) .
  • Finally, Mincer and Higuchi use cross-sectional differences in the returns to tenure across industries; the current study examines differences in the returns to tenure across establishments, the unit of analysis relevant for establishment-specific human capital.

III. The Data

  • The data are from 1982-83 surveys of manufacturing establishments in the Indianapolis area in the US and from the Atsugi region (outside of Tokyo) in Japan.
  • Within this population, organizations were stratified by employment size and by industry, and randomly selected.
  • In Japan the wage measure is the log of annual earnings, including the annual bonus and small bonuses based on family characteristics.
  • Of the training measured by TRAIN may not be OJT, but may already have occurred before hiring.
  • Three measures for turnover are available in this data set.

IV. Results Using Wage Equations

  • Table 2 presents wage equations without OJT controls for the United States and for Japan, also known as Baseline wage equations.
  • The magnitude of the training effect on wages increases their confidence that the OJT variables are valid measures of human capital.
  • Furthermore, the industry effects (columns 1 and 3) and the firm effects (columns 2 and 4) remain virtually unchanged after controlling for OJT.
  • In Japan, the coefficient is small and not significant.
  • In the United States, establishments with high returns to tenure had statistically significantly more absences-the opposite of the predictions of Lazear's theory that high returns to tenure increase performance (Table 6 , column 3).

VI. Conclusions and Further Research

  • Human capital theory is the foundation of contemporary neoclassical labor economics.
  • While it has had numerous successes in predicting labor market phenomena, it has been less successful in the tests presented in this paper.
  • Contradicting human capital theory, there is no evidence in either the United States or in Japan that OJT measures explain past wage anomalies.
  • In neither country do plants with high returns to tenure provide above-average levels of training.
  • Finally, there is no evidence that plants with high levels of average OJT enjoy lower average turnover.

Did you find this useful? Give us your feedback

...read more

Content maybe subject to copyright    Report

UC Berkeley
Working Paper Series
Title
Worth Waiting For? Delayed Compensation, Training and Turnover in the United States and
Japan
Permalink
https://escholarship.org/uc/item/97m9v25n
Author
Levine, David I.
Publication Date
1991-04-01
eScholarship.org Powered by the California Digital Library
University of California

WORTH WAITING FOR?
DELAYED COMPENSATION, TRAINING
AND
TURNOVER
IN THE
UNITED STATES
AND
JAPAN
David
I.
Levine
350
Barrows Hall
School
of
Business Administration
University
of
California, Berkeley
November
21,
1$90
Keywords: Human capital,
on-the-job
training, turnover, Japan.
Acknowledgements:
Jim
Lincoln
kindly
provided
the
data set.
I
have also
benefitted
from
reading
his and his
co-authors' research.
Ishak
Saporta
and
Libby
Bishop provided expert research assistance, financed
by the
U.C.
Berkeley Institute
of
Industrial Relations. Bill Dickens,
Sue
Helper,
Yoshio
Higuchi,
Jonathan Leonard, Brian Main, Juliet
Schor,
Janet
Yelien
and the
seminar participants
at UC
Berkeley, Dartmouth,
and the
Sloan School made
helpful
comments.

Abstract
This
paper utilizes
a
rich data
set on
workers
and
their employers
in the
US
and
Japan
to
test several predictions
of
human capital theory.
The
data
set
incorporates
both prospective
and
retrospective measures
of
turnover, includes
multiple measures
of
training,
and
provides
a
basis
for
calculating plant-specific
returns
to
tenure.
Contrary
to
human capital theory, there
is no
evidence that establishments
with high levels
of
training have either high returns
to
tenure
or low
levels
of
turnover. Surprisingly, establishments with high returns
to
tenure
do not
have
low
levels
of
turnover.

I.
Introduction
This paper
tests
two
basic predictions
of
human capital
theory:
(1)
establishments that provide high levels
of
training
will
have high returns
to
tenure;
and (2)
establishments with
high
returns
to
tenure will have
low
rates
of
turnover.
These predictions
are
tested with
a
unique data
set
containing information
on
over 4000 employees
of
more than
80
manufacturing plants
in the
United States
and
Japan.
The
data
set is
quite rich along several dimensions.
It is the
first
to
provide
a
basis
for
calculating
plant-specific
returns
to
tenure
for
tests
of
human capital theory.
The
data incorporate both
prospective
and
retrospective measures
of
turnover,
as
well
as
absences. Furthermore,
the
data include five measures
of
training; while each
is
imperfect, most other data sets with
information
on
training have contained only
a
single imperfect
measure.
The
predictions
of
human capital theory
are not
supported
in
either
the
United States
or
Japan. Establishments with
particularly high returns
to
tenure
do not
have high levels
of
training. Furthermore, establishments with high returns
to
tenure
do not
have
low
levels
of
turnover. Finally,
establishments with high levels
of
training
do not
have
low
levels
of
turnover. Thus, there
is no
evidence
in
these data
for
the
hypothesis that differences
in
training
underly
the
differences
in
turnover
and
wage profiles observed between
the US
and
Japan.
At
the
individual level, workers
who
report that their jobs
keep
them learning
new
things have lower intentions
to
quit,
as
predicted
by
human capital theory. However, this relationship
appears
to be due to the
increased satisfaction with their
enriched jobs,
not due to
changes
in
current
and
future wage
levels
as
stressed
by
human capital theory.
In
short,
the
data
are
not
strongly supportive
of
human capital theory.
The
ability
to
test both
the
relation between wage profiles
and
turnover,
and the
relation between training
and
turnover adds
credibility
to the
results:
the
first
set of
tests
does
not
rely
upon
the
possibly mismeasured training, while
the
second
set of
test does
not
rely upon
the
possibly mismeasured wage profiles.
II.
Literature Review
Several basic implications
of the
human capital model
are
summarized
by
Jacob Mincer
and
Yoshio
Higuchi:

That greater volumes
of job
training imply
steeper
wage
profiles
on the job and
over longer work experience
is a
theorem
in
human capital analysis.
A
similar theorem
predicts
a
negative effect
of job
training
on
turnover,
on
the
plausible assumption that larger volumes
of
training
also contain more
firm-specific
training, even
if the
latter
is
not a
fixed part
of the
former.
(1988:
101)
I
The
reason
for the
hypothesized positive relation between
training
and
wage profiles differs depending
on
whether
the
company provides general training
(i.e.,
training that
is
valuable
at
many
employers),
or
provides training that
is
firm-
specific.
For
firms providing general human capital, wages
are
high
for
senior
workers
since both their productivity
and
their
market wages
are
higher after training.
For
firm-specific
human capital, wages increase with tenure
as
a way to
reduce turnover. Specific training early
in a
career
leads
to
quasi-rents
that
are
divided between
the
worker
and the
firm.
It is
unclear
how
much
of the
returns
to
training will
be
captured
by
trained workers. Firms will share some
of the
quasi-
rents
in
order
to
discourage turnover,
but the
precise solution
to the
bargaining problem with bilateral monopoly
is
indeterminate.
For
both general
and
firm-specific
training,
competition
for the
high wages
paid
to
trained workers leads
to
entry-level wages being
bid
down.
There
are
numerous theories
in
addition
to
human capital
theory that predict positive returns
to
tenure. Most
of
these
theories also predict lower turnover
in
jobs with high
returns
to
tenure.
In the
incentive
model,
paying
high
wages
to
workers
late
in
their careers provides incentives
for
workers
to
work
hard
(Becker
and
Stigler,
1974;
Lazear,
1981).
In the
selection
model,
upward-sloping wage profiles select
for
workers
who
have
low
discount rates
and are
unlikely
to
quit (Salop
and
Salop,
1976).
The
selection
model
is
closely related
to the
standard
human capital model,
but
stresses
the
unobservable
nature
of
some
human
capital.
The
matching model predicts upward-sloping
returns
to
tenure because high-quality
and
high-wage matches
are
the
most likely
to
persist
(Jovanovic,
1979).
While
the
theory
of
human capital
has
been
an
important part
of
economics
for a
generation, testing
of the
model's
detailed
1.
Both
of the
theorems
of
human capital theory
rests
upon
auxiliary assumptions, discussed below. Furthermore, many
implications
of
human capital theory
are
also consistent with other
theories; thus, their acceptance
is not
exclusively evidence
in
favor
of
human capital,
and
their rejection does
not
always bode
well
for
other theories
of
labor market behavior.

Citations
More filters

Journal ArticleDOI
Abstract: This article compares various measures of on‐the‐job training, from a new source that matches establishments and workers, allowing us to compare the responses of employers and employees to identical training questions. Establishments report 25% more hours of training than do workers, although workers and establishments report similar incidence rates of training. Both establishment and worker measures agree that there is much more informal training than formal training. Further, informal training is measured about as accurately as formal training. Finally, we show that measurement error reduces substantially the observed effect of training, in particular the effect of training on productivity growth.

198 citations


Posted Content
Abstract: Using data from the National Longitudinal Survey of Youth (NLSY) for the period spanning the years 1979-1991, this essay examines the impact of employer-provided formal training on the wage profile and on the mobility of young Americans making their transition to the labor market. By exploiting the longitudinal aspect of the data set, we are able to provide some control for unobserved individual and job-match heterogeneity by making use of the methodology proposed by Altonji and Shakotko (ReStud '87). The results show that (i) training with the current employer has a statistically and economically significant positive effect on the wage; (ii) employers seem to reward skills acquired through training with previous employers as much as skills they provide themselves; (iii) workers undergoing training have 18 percent lower starting salaries than other workers; this result is obtained by setting up a starting wage equation and by making use of a variable called on-the-job training still in progress at the time of the interview; (iv) with a hazard model which makes use of multiple employment spells by the same worker (thereby allowing the implementation of fixed-effects methods akin to the conditional logit method), skills acquired through formal training programs provided by the current employer seem to be fairly specific. The upshot from these results is that formal on-the-job-training in the current job contains both a general component which the employer rewards up to its market value and a specific component which reduces mobility while not being rewarded. En utilisant des donnees americaines du National Longitudinal Survey of Youth (NLSY), cette etude s'attarde a examiner l'impact de la formation dispensee par l'employeur sur le profil salarial ainsi que sur la mobilite des jeunes travailleurs faisant leur entree sur le marche du travail. En exploitant l'aspect longitudinal de l'echantillon de facon a tenir compte de l'heterogeneite non observee, les resultats montrent (i) un impact economiquement et statistiquement significatif de la formation sur le salaire dans l'emploi courant, (ii) un impact substantiel sur le salaire de la formation acquise avec les employeurs precedents, (iii) une reduction d'environ 18% du salaire de depart pour les travailleurs en formation, et (iv) par un modele de duree qui tient compte des episodes multiples d'emploi (permettant alors l'utilisation de methodes de type effets fixes ), un degre substantiel de specificite du capital humain acquis par le biais de programmes de formation dispenses par l'employeur. La conclusion a tirer de ces resultats est que le capital humain acquis contient a la fois une composante generale remuneree egalement par tous les employeurs ainsi qu'une composante specifique qui reduit la mobilite tout en n'etant pas remuneree.

182 citations


Cites background or methods from "Worth Waiting For? Delayed Compensa..."

  • ...0734-306X/99/1702-0002$02.50 298 / 9e14$$ap05 03-05-99 10:27:22 laeca UC: Labor Econ Barron, Black, and Loewenstein 1988; Brown 1989; Altonji and Spletzer 1991; Lynch 1991, 1992; Barron, Berger, and Black 1993; Levine 1993; Blanchflower and Lynch 1994; and Loewenstein and Spletzer 1995) ....

    [...]

  • ...As Levine (1993) recognizes, it may be that such data are too coarse to pick up that effect if it is there....

    [...]

  • ...Mincer (1988), Brown (1989), Barron, Black and Loewenstein (1989), Barron, Berger and Black (1993), and Levine (1993) have attempted to do so with training data that were of a qualitative and subjective nature while Lynch (1992) and Blanchflower and Lynch (1994) used a data set, the National Longitudinal Survey of Youth (NLSY), that has the actual number of weeks spent training....

    [...]


Journal ArticleDOI
Abstract: Using data from the National Longitudinal Survey of Youth, this article examines the impact of employer‐provided training on the wage profile and on the mobility of young workers. The main results are that (i) training with the current employer has a positive effect on the wage; (ii) employers seem to reward skills acquired through training with previous employers as much as skills they provide themselves; and (iii) part of the skills acquired through training programs provided by the current employer seem to be fairly specific as they are shown to reduce mobility, even after controlling for unobserved heterogeneity.

150 citations


Book
01 Sep 1999
Abstract: These papers were presented at the International Symposium of Linked Employer-Employee Data, Washington DC, May 1998, to address the creation and analysis of such matched data in an environment that safeguards respondent confidentiality, and looks at the analysis of such linked data, related econometric issues, and creating large-scale linked data.

136 citations


Journal ArticleDOI
Abstract: Jim Lincoln kindly provided me with the dataset. I have also benefited from reading his and his co-authors' research. Libby Bishop and Ishak Saporta provided expert research assistance, funded by the Institute of Industrial Relations and the Consortium on Competitiveness and Cooperation, U.C., Berkeley. Helpful comments from Jim Baron, Bill Dickens, Jonathan Leonard, Lee Levine, Jim Lincoln, Janet Yellen, seminar participants at Stanford, Wharton, the Sloan School, and U.C., Berkeley and from the editors and referees are gratefully acknowledged. This study examines data on more than 8,000 employees of nearly 100 manufacturing plants in the United States and Japan to measure the effects of differences in wages on workplace attitudes and behaviors. In both the U.S. and Japan, workers receiving high wages are less likely to quit, are more satisfied with their pay, and report that they work harder than they have to. These results support theories of segmented labor markets and of social comparison, but not theories of human capital or compensating differences. In the U.S. data there is no evidence that the effects of high wages are less powerful than the effects of low wages. This result contradicts some variants of status-inconsistency and distributive justice theories. In Japan, workers who are highly paid compared with others in their plant appear to experience discomfort. This result indicates the important role social comparison plays in Japan.'

134 citations


References