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Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers

Matteo Picchio

CentER, ReflecT, Tilburg University Sherppa, Ghent University IZA

Jan C. van Ours

CentER, ReflecT, Tilburg University University of Melbourne IZA, CEPR, CESifo

Amsterdam 26 October 2011

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Introduction

Introduction

On-the-job training of the workforce is important

At macro level, the accumulation of human capital is the main engine of growth (Lucas, 1993) At micro level, on-the-job training is key factor for a sustained competitive advantage (Wright et al., 1995)

In the recent crisis, temporary shorter working hours arrangements, often in combination with training, have been used as instruments ⇒

Many countries reported measures to provide training to existing workers at risk of job loss (OECD, 2010).

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Introduction

Aim

We study the effect of firm-provided training on the probability of being at work in the Netherlands. We also focus on the effect for older workers, as the labour market position of older workers is cause of concern in the NL (as in many European countries):

demographic trends are causing an ageing of the workforce;

• lder workers’ job separation rates are often a one-way street
• ut of the labour force.
• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Related Literature

Related Literature: Adult Training

The question whether adult training affects labour market performances and productivity of workers has been the core of substantial research.

Training programmes are found to have a modest or no effect

• n unemployment exit rates (Gerfin and Lechner, 2002;

Andr´ en and Andr´ en, 2006; Cr´ epon et al., 2007; Lechner et al., 2008; Lalive et al., 2008; Sianesi, 2008) and on wages (Heckman et al., 1999). Positive effects on future employment stability (Cr´ epon et al., 2007; Lechner et al., 2008) and job satisfaction (Jones et al., 2009)

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Related Literature

Related Literature: On-the-Job Training

Another branch of the literature focused on on-the-job

• training. It increases

employment prospects (Gritz, 1993; Bonnal et al. 1997); wages (Bartel, 1995); firm productivity (Bartel, 1994; Barrett and O’Connell, 2001; Conti, 2005; Dearden et al., 2006)

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Related Literature

Related Literature: in the NL

Some studies have tried to infer the impact of different kind

• f training programmes on future employment prospects:

Ridder (1986): especially women and minorities benefit from training programmes; Pavlopoulos et al. (2009): training increases the chances for upward wage mobility.

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Data and Sample

Data

Data are from the 1994–2001 waves of the European Community Household Panel (ECHP). The longitudinal ECHP for the NL comprise a number of individual records that range from 12,000 to 13,000 per year, for a total of 100,716 records.

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Data and Sample

Sample

The 1994 wave is lost due to lack of information in training. We remove individuals younger than 26. We remove the self-employed. We remove observations with missing values. We remove individuals that are not in the sample for at least 3 consecutive waves. We end up with an unbalanced panel of 7,257 individuals, for a total of 33,348 records in the period 1996–2001.

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Data and Sample

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Data and Sample

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Data and Sample

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Econometric Model

Econometric Model

We model the impact of the firm-provided training indicator

• n the employment probability

The training indicator is a potentially endogenous human capital variable:

self-selection due to unobserved heterogeneity (ability, intelligence, motivations, labour force attachment); feedback effects from shock in the employment status to future training participation

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Econometric Model

Econometric Model

The interrelated dynamics between employment status and training participation are specified using a panel data dynamic bivariate unobserved effects probit model ajit = cji + ηjit is individual heterogeneity

cji is the permanent component capturing time-invariant characteristics (ability, intelligence) ηjit is the transitory component (motivations, labour force attachment)

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Econometric Model

Correlated RE and Initial Conditions

The presence of unobserved heterogeneity generates 2 problems:

1

get rid of the fixed effects c1i and c2i ⇒ Mundlak (1978) version of Chamberlain’s (1984) approach

2

initial conditions due to the dynamic and the correlation between the unobserved heterogeneity and initial observations

• f the outcome variables ⇒ Wooldridge’s (2005) approach
• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Econometric Model

Unobserved Heterogeneity Distributions

In order to avoid too strict parametric assumptions on the distribution of the permanent and transitory components of unobserved heterogeneity, we assume that

1

vi ≡ (v1i, v2i) is a random draw from a discrete distribution with a priori unknown number of support points

2

ηit ≡ (η1it, η2it) is a random draw from a discrete distribution with a priori unknown number of support points.

The number of support points is chosen by minimizing the AIC.

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Econometric Model

Likelihood Function

As vi and ηit are not observed and are assumed to be random terms from bivariate distributions, we integrate them out when the model is estimated by ML. The contribution to the likelihood function of individual i is given by where Φ denotes the cdf of the standard normal distribution.

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Econometric Model

Predicting Probabilities and APEs

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Econometric Model

Identification

We exploit different identification sources.

1

The sequencing: training during the year before the interview date can be assumed to be predetermined w.r.t employment

• status. However, firms might be more likely to train those

workers that they seek to retain.

2

To the extent that some of the time-varying variables are strictly exogenous, the imposed stability of the structural parameters over time jointly with their time-variation will provide a multiplicity of instruments (Bhargava, 1991).

3

Some household characteristics are included in the employment equation but excluded from the training equation.

4

Multiple observations per individual exploited to identify the unobserved heterogeneity distribution.

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Estimation Results

Univariate Models

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Estimation Results

Benchmark Model

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Estimation Results

Retaining Older Workers

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Robustness Checks

Robustness Checks

3 sensitivity analyses to assess whether our estimates are robust to misspecification

1

due to omitting information about individuals who might have attended training courses not provided by the firm

2

• f the dynamic

3

due to strict parametric assumptions on unobserved heterogeneity

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Conclusions

Conclusions

We find that firm-provided training significantly improves employment prospects. For prime age workers, generally with a strong labour market position (after job loss they find a new job easily), this relationship may be of limited interest. However, we find that also older workers are more likely to be at work if they receive firm-sponsored training.

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers

Retaining through Training, Even for Older Workers Conclusions

Policy Suggestions

The labour market position of older workers is cause for concern

job separations are often a one-way street out of the labour force demographic trends are causing an ageing of the workforce

Our research findings suggest that on-the-job training may be an important instrument to increase the employment position

• f older workers ⇒

Age specific subsidy might be used to stimulate on-the-job training Age-specific layoff taxes

• M. Picchio & J.C. van Ours

Tilburg University Retaining through Training, Even for Older Workers