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