The impact of training on productivity and wages : evidence from British panel data

Dearden, Lorraine, Reed, Howard and Van Reenen, John ORCID: 0000-0001-9153-2907 (2005) The impact of training on productivity and wages : evidence from British panel data. CEP Discussion Papers (674). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

It is standard in the literature on training to use wages as a sufficient statistic for productivity. But there are many reasons why wages and productivity may diverge. This paper is part of a smaller literature on the effects of work-related training on direct measures of productivity. We construct a panel of British industries between 1983 and 1996 containing training, productivity and wages. Using a variety of econometric estimation techniques (including system GMM) we find that training is associated with significantly higher productivity. Raising the proportion of workers trained in an industry by one percentage point (say from the average of 10% to 11%) is associated with an increase in value added per worker of about 0.6% and an increase in wages of about 0.3%. Furthermore, we find that the magnitude of the impact of training on wages is only half as large as the impact of training on productivity, implying that the existing literature has underestimated the importance of training. We also show evidence using complementary datasets (e.g. from individuals) that is suggestive of externalities of training and imperfect competition.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk
Additional Information:	© 2005 L. Dearden, H. Reed and J. Van Reenen
Divisions:	Economic History Centre for Economic Performance Economics
Subjects:	H Social Sciences > HD Industries. Land use. Labor
JEL classification:	C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C23 - Models with Panel Data D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
Date Deposited:	17 Feb 2008
Last Modified:	01 Nov 2024 04:51
URI:	http://eprints.lse.ac.uk/id/eprint/779

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