If training increases the chances that workers will be poached, shouldn’t employees pick up the tab? That’s a traditional argument in labour economics. But Vasilios D Kosteas writes that companies should pay. His research shows that employer-sponsored training leads to higher job satisfaction and reduces employee turnover, eliminating the costs of recruiting someone new, training the successful candidate and absorbing their low initial productivity.
A fundamental question in labour economics is whether firms should bear the full costs of training employees or push some of those costs onto workers through mechanisms such as lower wages during the training period, considered probationary.
Standard economic theory suggests that firms should not pay for general training, where the skills and knowledge developed are fully transferable to other firms. The concern is that the worker may be poached by another employer that did not incur the cost and the firm will not reap any reward for its investment.
However, the basic, standard model does not account for the impact of employer-sponsored training on job satisfaction and worker turnover. While empirical studies have found evidence that workers “pay” for training in the form of lower starting wages, the reduction is frequently rather modest. Other research shows that companies pay at least some of the costs of general training, in particular through benefits such as tuition reimbursement for university coursework.
Empirical research suggests that employers provide tuition benefits in an effort to attract and retain higher quality employees. This raises the question whether employer-sponsored training leads to reduced labour turnover. When employees leave, there are associated costs for companies (search, lower initial productivity and training). Reducing turnover may be a rationale for employers to provide and fully pay for training, even at the risk of making employees more valuable to other firms. Establishing whether, and to what extent, training provision reduces worker turnover informs the important question of who should pay for it.
The post-pandemic surge in “quiet quitting”, where workers significantly reduce their work effort without actually quitting their jobs, emphasises the need to understand job satisfaction to avoid disengagement. The ability of job training to increase job satisfaction and help keep workers engaged and productive provides another rationale for employers to provide and pay for it.
The psychology literature proposes various theoretical models that explain how worker characteristics and job features affect worker satisfaction. The job demands-resources model, which was developed to explain worker burnout, helps us understand how training might impact job satisfaction and, ultimately, turnover. This model categorises job features into demands and resources. Job demands require sustained mental or physical effort while resources help workers perform. A combination of excess job demands and insufficient resources can result in burnout, and by extension, worker turnover. How does job training fit into this model? Training equips workers with the skills and knowledge needed to meet the demands of their jobs, helping bring their resources in line with demands and reducing burnout and turnover.
Previous research has examined the relationship between training and job satisfaction in different country contexts. For example, studies have found that training opportunities for British workers are positively correlated with satisfaction with the job, amount of pay, sense of achievement and respect from supervisors. Orientation training has a positive association with overall job satisfaction for both women and men employed in the public sector, but only for men in the private sector.
Other studies have shown a positive relationship between job satisfaction and employer-sponsored training for German men. The increase in job satisfaction resulting from employer-provided training is equivalent to the effect of a 17.7 per cent increase in earnings in a panel of European workers. While these studies establish a link between employer-provided training and job satisfaction, there is a paucity of research examining whether the provision of training opportunities also leads to lower worker turnover.
My research examines data on US workers between the ages of 18 and 40. It shows that employer-sponsored training leads to higher job satisfaction and reduces turnover. I use a variety of statistical techniques and controls to account for worker selection into training (more motivated and high-ability people seek out training opportunities) and the possibility that higher-quality employers are more likely to offer training.
In contrast with some studies cited above, I find that employer-sponsored training increases job satisfaction for both men and women in the US workforce. Conversely, participation in other types of training (vocational, government sponsored, school-based, etc.) has a modest, negative correlation with job satisfaction, possibly reflecting workers’ preparation and desire for a different occupation.
To account for worker selection into training, I separate mandatory from voluntary training and find that both lead to higher job satisfaction. Splitting the sample into work types, these effects are driven by blue-collar workers and are strongest for those in the wholesale and retail trade, transportation and warehousing industries.
Next, my research shows that participation in employer-sponsored training programs leads to a significant decrease in worker turnover. I examine data on these individuals between the years 2000 and 2019. Given the longitudinal nature of the dataset, I am able to determine whether a worker changed employers across survey years. People who received employer-sponsored training in the previous survey year are 30 per cent less likely to have changed employers.
I find that participating in employer-sponsored training reduces the odds of quitting by nearly 60 per cent. By contrast, participating in other types of training slightly raises the likelihood of quitting. As with job satisfaction, the results are similar, whether the employer-sponsored training events are mandatory or voluntary.
My research supports the belief that employers can raise job satisfaction and significantly reduce worker turnover by providing training opportunities for their workers. The extent to which training reduces turnover suggests that firms have a high return on investment for these activities. Given the prevalence of quiet quitting and the elevated rates of actual quitting, companies can benefit from increasing their investment in training and promoting these benefits as a means to recruit quality employees.
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This blog post is based on Job satisfaction and employer-sponsored training, British Journal of Industrial Relations.
- The post represents the views of the author(s), not the position of LSE Business Review or the London School of Economics and Political Science.
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