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
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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.