Research Paper Discussion Paper 486
Testing Some Predictions of Human Capital Theory: New Training Evidence from Britain
15 Apr 2002
We use important new training data from Waves 8-10 of the British Household Panel Survey to explore the degree to which the data are consistent with the predictions of human capital theory. Our data show that most work-related training is viewed by its recipients as general, that the longest training courses are for induction purposes, that the vast majority of training takes place either at the workplace or at the employer's training centre, and that most training is paid for by employers. We also estimate the impact of training - controlling for its financing method - on wages. We find that employer-financed training increases wages both in the current and future firms, with some evidence that the impact in future firms is larger, especially for accredited training. These results are inconsistent with orthodox human capital theory with no credit constraints, but consistent with the relatively recent training literature on training in imperfectly competitive labour markets. They are also consistent with the hypothesis that firms offer credit-constrained workers binding training contracts whereby firms pay for general training and workers repay this 'loan' by receiving a post-training wage below their marginal product.