Training

Earnings

Earnings associated with training stem mainly from its potential positive effect on worker productivity. Further, this positive effect may be bigger if, for example, training is provided in organizations that offer greater job autonomy or use incentives linked to organizational performance. Hence, an organization's willingness to finance training activities would be greater when complementary activities, such as the ones just cited, are in place.

Costs

Training costs encompass the initial investment as well as the future potential increases in salaries to compensate and retain more skillful workers. Any [Page 1559]factor that reduces an organization's cost of training improves the organization's willingness to engage in training activities. Essentially, organizations can share training costs with workers through voluntary wage reductions such as in the case of apprenticeship contracts and with government-supported programs.

Time

As with many other investment decisions, with training, cost can exceed earnings at the beginning of the decision period. Hence, those who finance training need time to recoup the initial investment (cost). In this vein, the willingness to engage in training activities increases with the length of the employment relationship. The literature on the determinants of training has listed several factors that increase the probability that a worker will stay in an organization. Wage compression in the labor market is one of those factors. Wage compression means that trained and untrained workers receive similar wages. When organizations can identify the training level of the workers of competing organizations (i.e., the labor market is competitive), organizations have no incentives to engage in generic training (i.e., training that is equally valuable in all organizations) because trained workers can leave the organization and be paid equal to what they were earning in the organization that financed their training. However, information asymmetries or simply the lack of competitiveness for labor can distort labor markets and limit the trained worker's capacity to collect higher wages, thereby creating wage compression. This wage compression transforms generic training into de facto specific training (i.e., training that is only valuable in the organization that provided it).

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