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A comparative study of training in the private and public sectors: Evidence from the UK and the USA

IREF Working Paper No. 201306: Fabio Méndez and Facundo Sepúlveda

There is a vast literature that documents the benefit of training, both for the employee (whose productivity and wage rate increase) and for the employer (who can absorb technological advances by employing highly skilled personnel, and gain in competitiveness). In brief, this literature has produced three key results:
• Most training schemes are financed by the employer, even when the employee could put the acquired skills/knowledge to work with a new employer
• Employer-financed training leads to higher productivity and higher wages
• Training financed by other sources (including self finance) is hardly effective

These results are confirmed in the present study, which however also focuses on another issue, largely neglected by most authors. In particular, Méndez and Sepúlveda analyze whether there is a difference between the effectiveness of training provided by private employers and training provided by public employers. In this vein, this paper investigates
• Whether training programmes are more selective in the private or in the public sector, i.e. whether the beneficiaries tend to be highly educated workers, or the workers’ population at large;
• To which extent wage rates rise after training, in the private and in the public sectors;
• Whether training is “portable” across sectors, that is whether training spells in the private sector make are appreciated by the public employer, when the worker moves from the private to the public sector; and vice-versa.
In order to carry out their investigation, the authors rely on two data sets, related to the USA and the UK, respectively. Their results can be summarized as follows:
• Training does lead to an increase in the wage rate, both in the private and in the public sectors. On average, each training episode in the private sector is associated with a 4% increase in the wage rate in the US, 1% in the UK. However, the same figures are 6% and 0.7% when they apply to the public sector. By contrast, and consistent with the literature, self-financed training does not seem to be particularly important. In other words, employers have better knowledge of what companies need.
• Training projects financed by private employers are selective, whereas those financed by the public sector seem to be more dispersed across their workers’ population
• All measures of training are larger in the UK than in the USA, and in both countries public-employer financed training is found to be more frequent than private-employer financed training;
• Wages in the private sector are positively correlated with training episodes experienced in the public sector. Put differently, training is portable when the worker moves from the public to the private sector. However, portability in the opposite direction (from the private to the public sector) is significant in the USA, but negligible in the UK, possibly because the public sector does not seem to value – or able to reward — skills learned in the private sector.

IREF Working Paper No. 201306: Fabio Méndez and Facundo Sepúlveda

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