Training and Labour Market Flexibility: Is There a Trade‐off?
| Author | Alison L. Booth,Wiji Arulampalam |
| Published date | 01 December 1998 |
| DOI | http://doi.org/10.1111/1467-8543.00106 |
| Date | 01 December 1998 |
British Journal of IndustrialRelations
36:4 December 1998 0007–1080 pp. 521–536
Training and Labour Market Flexibility:
Is There a Trade-off?*
Wiji Arulampalam and Alison L. Booth
Abstract
This paper explores the nexus between work-related training and labour
market ‘flexibility’ (which we proxy by contract type, part-time employment
and lack of union coverage), using the first five waves of the British
Household Panel Survey (BHPS) conducted over the period 1991–5. Our
results show that workers on short-term employment contracts, who are
working part-time or are not covered by a union collective agreement, are
significantly less likely to be involved in any work-related training toimprove
or increase their skills. These findings suggest that there is a trade-off between
expanding the more marginal forms of employment and expanding the
proportion of the work-force getting work-related training.
1. Introduction
There has been growing emphasis in Britain on the need to increase
flexibility in the labour market and to facilitate work-related skills acquisi-
tion in order to allow Britain to meet the competitive challenges of the new
millennium (see e.g. Beatson 1995; OECD 1995). However, the term
‘labour market flexibility’ has been interpreted in different ways. To some, a
flexible labour market appears to be one in which the returns to entre-
preneurs and the start-up and demise of firms are unconstrained by
institutional rigidities such as employment restriction legislation and trade
union activity. In such a world, entrepreneurs can hire workers as readily
and for as long as they wish, without facing costs in adjusting e ither hours or
workers at the margin. To others, a flexible labour market means one in
which workers are able to adapt to changing demands by firms for skills by
training and retraining as necessary over their working lives.
How compatible is the goal of promoting flexibility (in the sense of
removing institutional rigidities) with the aim of increasing workers’
flexibility through skills acquisition? In particular, new forms of flexible
employment may be detrimental to long-run economic performance if they
Wiji Arulampalam (ne´e Nare ndranathan is at the University of Warwick; Alison Booth is at the
University of Essex.
¥ Blackwell Publishers Ltd/London School of Economics 1998. Published by Blackwell Publishers Ltd,
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522 British Journal of Industrial Relations
are associated with the under-valuation of training investment through the
shortening of agents’ time horizons. According to the human capital
approach, agents are more likely to invest in the acquisition of skills the
longer is the post-training period over which they can amortize their
investment. If either the firm or the worker expects job attachment to be
short-term, then work-related training either will not be provided (the firm)
or will not be accepted (the worker), depending on who bears the training
costs. Workers who are in the more flexible forms of employment such as
part-time employment or contract jobs may be less likely to undergo training
in precisely those skills that are supposed to make them more adaptable in
the face of technological change. Only if skills have a very short life (as might
be the case with rapid obsolescence of technology) would firms be
indifferent to training temporary as opposed to permanent workers.
Moreover, past cross-sectional studies have shown that, for Bri tain, there is
a positive correlation between work-related training on the one hand, and
trade union presence and firm size on the other.
1
So the increasing weakness
of one form of ‘institutional rigidity’ — the trade union — observed over the
past fifteen years in Britain, and the growing proportion of new firms with no
union recognition may be associated with less provision of skills at the
workplace.
The purpose of this paper is to explore the nexus between work-related
training and labour market ‘flexibility’ (as proxied by employment status,
contract type and lack of union coverage). The data source used in our
analysis is the British Household Panel Survey (BHPS), waves 1–5,
conducted over the period 1991–5. The precise form of work-related
training that we investigate is the more formal measure indicating work-
related training to improve or increase skills in the current job. We also
explore the relationship between general education and subsequent train-
ing. In so doing, we document the extent to which there is inequality in
access to work-related training in Britain in the 1990s, which may exacerbate
earnings inequality. We exploit the panel nature of the data to estimate
panel probits of training incidence, in order to control for what
econometricians term ‘unobserved individual heterogeneity’, as will be
explained below. The analysis is carried out separately for men and women
in employment. Our results show that workers on short-term employment
contracts, in part-time employment or not covered by a union collective
agreement are significantly less likely to be involved in any work-related
training to improve their skills. The estimated negative impact of these
variables on the probability of trainingis quite large. Our results suggest that
there is a trade-off between expanding the more marginal forms of
employment and expanding the proportion of the work-force getting work-
related training. Moreover, many studies have shown, after controlling for
other earnings-augmenting attributes, that workers who receive work-
related training earn higher wages subsequently (see inter alia Duncan and
Hoffman 1979; Booth 1991; Lynch 1992; Arulampalam et al. 1997). Thus,
our analysis of the extent to which there is inequality in access to work-
¥ Blackwell Publishers Ltd/London School of Economics 1998.
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