INVESTMENT IN INDUSTRIAL TRAINING: AN ASSESSMENT OF THE EFFECTS OF THE INDUSTRIAL TRAINING ACT ON THE VOLUME AND COSTS OF TRAINING
| DOI | http://doi.org/10.1111/j.1467-8543.1974.tb00005.x |
| Published date | 01 March 1974 |
| Author | Maureen Woodhall |
| Date | 01 March 1974 |
INVESTMENT IN INDUSTRIAL TRAINING:
AN
ASSESSMENT
OF
THE EFFECTS
OF
THE
INDUSTRIAL TRAINING ACT ON THE VOLUME
AND COSTS
OF
TRAINING
MAUREEN WOODHALL*
INTRODUCTION
DURING the last decade economists have devoted increasing attention to
the concept of human capital, and the implications of investment in
education for planning decisions. Much less attention has been paid to
the whole range of formal and informal training which takes place after
a
worker completes full-time formal education and enters the labour
market, even though such training represents substantial investment in
skills, and may contribute just
as
much to
a
worker’s future productivity
as his formal education. The importance of training, both on and off-
the-job, is recognized in the literature on human capital, and
a
number
of studies have been carried out of the costs and benefits of particular
training programmes, particularly manpower retraining programmes in
the
U.S.A.,
but nevertheless the main emphasis of recent work in the
economics of education both in this country and elsewhere is on formal
education in schools, colleges and universities. This article is concerned
with the scale of investment in training in Britain, since the Industrial
Training Act, and in particular attempts to estimate the total costs of
all forms of in-service training of emp1oyees.l
This aspect of human capital formation has been somewhat neglected.
For example Blaug, in his text-book on the economics of education,
devotes only nine pages to the economics of labour training, and concludes
that ignorance about the economic effects of training
is
perhaps the
‘central weakness in the armoury of educational planners. We may as
well confess we know almost nothing about the economics of training,
its incidence, its costs and its benefits.’2 There is a vast literature on
industrial training, dealing with the techniques and content of training,
and methods of assessing training needs, but very little of this literature
is concerned with the economic aspects of training, and it usually rests
on the assumption that it is desirable or profitable for most firms to in-
crease their training activity, without any very sophisticated discussion
*
Honorary Research Associate, University
of
London Institute
of
Education.
The article
is
a shortened version
of
a paper prepared
for
O.E.C.D.,
while
the author
was
a
M.
Blaug,
An
Introduction
to
the
Economics
of
Education,
Allen Lane, The Penguin Press,
acting
as
a consultant to the Directorate
for
Scientific Affairs.
London, 1970, p. 199. 71
72
BRITISH JOURNAL
OF
INDUSTRIAL RELATIONS
of
the costs and benefits of training. Books which do deal with the costs
of training are mostly concerned with the basic problems encountered
by a training officer when he attempts to calculate the costs of training
in his firm, rather than the economic consequences of investment in
training, or the costs of training in the country as a whole.3 Recently
the concept of ‘recurrent education’ has attracted attention and has
stimulated some discussion of the relationship between formal schooling
and the training of adults, but the economic implications
of
changing the
balance, in particular the question of the relative profitability of invest-
ment, and optimum distribution of resources between formal education
and training, remain largely unexplored.
Becker began his analysis of human capital with a discussion of
on-
the-job training, in order
to
demonstrate that the concept
of
investment
in human capital is a perfectly general concept which includes on-the-job
training, medical care, migration, etc. as well as schooling. However his
empirical work was almost wholly concerned with formal education, and
the main value of his discussion of the economics of training was its
emphasis on the distinction between general and specific training. Becker
argues that the costs of general training, which increases the potential
productivity of
a
worker in many different firms,
will
be borne mainly
by the worker himself, in the form of forgone earnings while he is under-
going training; whereas the costs of specific training will be borne by
the firm, since such training will increase the worker’s productivity only
in the firm providing the trainir~g.~ This distinction has been criticized,
on the grounds that
a
firm will decide whether or not
to
finance the costs
of training with reference to the mobility of labour in its locality, rather
than the content of a training programme,6 and trade union wage bargain-
ing is likely to affect the distribution of the costs of training between
employer and employee,
so
that Becker’s assumptions
of
perfect competi-
tion are no longer valid. Nevertheless, the distinction is an important
one, even though firms do not operate in perfect competition, and most
training is neither wholly general nor wholly specific. The distinction
helps to focus attention on one important point, that the total costs
of
training include not only direct expenditure by firms on training facilities,
but the opportunity cost of the time of workers which
is
devoted to on-
the-job training and which is measured
by
earnings forgone, in the case
of the trainee, and output forgone, in the case of the firm.
To
measure
this accurately we need to be able to measure the time devoted to training,
and the value of a trainee’s productive work,
so
that the difference between
For
example
D.
Garbutt,
Training Costs: With Reference
to
the Industrial Training Act,
Gee
and
Go.,
London, 1969 and
J.
R. Talbot and C.
D.
Ellis,
AnalysisandCosting of Company Training,
Gower
Press,
London, 1969, are both manuals
for
the training officer, and
full
of
advice about
how
to
calculate costs, but do not give any actual estimates
of
the costs
of
training.
G.
Becker,
Human Capital,
Colombia University
Press,
New
York,
1964, pp. 11-29.
See,
for
example,
M.
Oatey, ‘The Economics
of
Training with Respect to the
Firm’,
British Journal
of
Industrial Relatwns,
Vol.
VIII,
No.
1,
March 1970.
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