Who Benefits from Training and R&D, the Firm or the Workers?
| Author | Erol Taymaz,Fathi Fakhfakh,Gérard Ballot |
| Date | 01 September 2006 |
| Published date | 01 September 2006 |
| DOI | http://doi.org/10.1111/j.1467-8543.2006.00509.x |
British Journal of Industrial Relations
44:3 September 2006 0007– 1080 pp. 473– 495
© Blackwell Publishing Ltd/London School of Economics 2006. Published by Blackwell Publishing Ltd,
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Blackwell Publishing Ltd.Oxford, UKBJIRBritish Journal of Industrial Relations0007-1080Blackwell Publishing Ltd/London School of Economics 2006September 2006443473495Articles
Who Benefits from Training and R&D?British Journal of Industrial Relations
Gérard Ballot and Fathi Fakhfakh are at Université Panthéon-Assas (Paris II) and ERMES-
CNRS, France. Erol Taymaz is at Middle East Technical University, Ankara, Turkey.
Who Benefits from Training and R&D,
the Firm or the Workers?
Gérard Ballot, Fathi Fakhfakh and Erol Taymaz
Abstract
The present paper offers a novel study of the effects of intangible assets on wages
and productivity. Training, R&D and physical capital are all taken into account,
and their joint effects are examined. We use panels of firms in order to control
for unobserved fixed effects and the potential endogeneity of training and R&D,
using data for France and Sweden. The estimation of productivity and wage
equations allows us to show how the benefits of investment in physical capital,
training and R&D are shared between the firm and the workers. We found that
firms indeed obtain the largest part of the returns to their investments, but their
share is relatively lower for intangible assets (R&D and training) than for
physical capital.
1. Introduction
Economists have long recognized the role of intangible assets such as knowl-
edge and human capital as the engine of economic development. A large
number of theoretical and empirical studies show that human capital, accu-
mulated by education and training, and knowledge on new products and
processes, generated by R&D activities, are the main source of growth in
output in the long run (for an extensive study, see Aghion and Howitt 1998).
The R&D investment literature has focused on the effects of spillovers: a firm
is likely to get only a part of the benefits of the innovations it generates
because other firms and consumers will also benefit through knowledge spill-
overs and other forms of externalities. Thus, the private rate of return will be
lower than the social rate of return and this will lead to underinvestment in
R&D activities. However, this literature does not pay sufficient attention to
the fact that the employees of the innovating firms may also share these
benefits.
1
Finally, we should make it clear here that the firms’ returns (or
474
British Journal of Industrial Relations
© Blackwell Publishing Ltd/London School of Economics 2006.
benefits) take the form of a higher productivity which may itself be shared
between an increase in profits and a decrease in prices leading to higher
market shares.
The focus of the literature on investment in training (firm-sponsored train-
ing) is the effect on workers’ wages and careers. However, the primary aim of
training is to increase productivity. This emphasis on wages comes from the
dominant position of human capital theory in labour market research that
stresses the supply of labour. It has been reinforced at the empirical level by
the availability of data on wages, and the scarcity of data on training expen-
ditures. However, more data are now available, as we will see below. The
human capital theory also implies that workers are remunerated according to
their marginal product, even though this may hold on average over long
periods. Recorded increases of wages with tenure are then interpreted as
effects of (specific) training. As for general training, it could only be financed
by the workers themselves. It should be immediately reflected in their wage
as a result of perfect competition in the labour market. There would (by
assumption) be no additional returns for the firm. Important policy conclu-
sions follow from this view. Because of the externality, firms under-invest in
training activities, and because workers are financially constrained, there is
an under-provision of training in the economy, and a case for (costly) gov-
ernment subsidies, or a levy on firms to fund training, as in France.
Training activities sponsored by firms and by governments impose burdens
on the resources of nations. While new growth models have emphasized that
aggregate human capital has an important role in explaining productivity and
growth, empirical studies using aggregate data have yielded mixed results
2
and
have raised demands for direct measures on the productivity impact of human
capital. Moreover, the studies based on a panel of countries use measures of
education, not training, and these measures are often very crude. Because
training expenditures are so costly, there are debates about the efficiency of
the training systems, and the reform of these systems has become a contested
political issue, for instance in France (Gauron 2000). Simultaneously, new
theories have been developed to justify that firms can rationally sponsor
general training because they can retain part of the returns.
3
However, there
is little empirical work on how the benefits (productivity increases) are shared
by the fir m and its workers. The lack of panel data on training activities at
the firm level is one reason (for a comprehensive survey, see Blundell
et al.
1999).
The present study is, to the best of our knowledge, the first that analyses
how the returns to tangible and intangible assets are shared by firms and
their employees by using panel data at the firm level. The specific contribu-
tions are as follows. First, it uses longitudinal firm-level data on training and
productivity. This allows us to measure the private rate of return to the firm’s
investment, all the more because we calculate training stocks at the firm
level. Moreover, the panel data allow us to control for unobserved fixed
effects and the potential endogeneity of training. Second, it deals simulta-
neously with the effects of another important intangible investment of the
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