Heterogeneous Effect of Training on Earnings

3 Heterogeneous Effect of Training on Earnings1

While there is a broad literature on the average wage effect of training, little is known about the effects of different training forms and about the effects for heterogeneous training participants. As noted in the OECD Employment Outlook 2004: “Available evidence on employee training focuses on the average effect on wages and productivity – thus, leaving aside the issue of how training affects workers’ employment prospects in general, as well as for specific groups” (OECD, 2004: 184). The OECD notes only four exceptions, where the training impact for specific groups is considered. These are Bassanini and Brunello (2003), Leuven and Oosterbeek (2004), Arulampalam, Booth, and Bryan (2004), and Kuckulenz and Zwick (2003). This study adds two aspects to the literature on earnings effects of training which capture the claim made by the OECD to look at heterogeneity. First, the earnings effect of training is calculated for different “types” of employees, i.e. discriminating between qualification level, experience, job tenure, and other attributes. Second, I distinguish between the earnings impact of external and internal training. For the empirical analysis, I use the “Qualification and Career Survey”, a rich German data set with information on 0.1% of all individuals employed in Germany in 1998/1999, which was introduced in section 2.4.2. This chapter consists of four sections, each focussing on the heterogeneity of the effect of continuing training on earnings. In the first section, I use a one-step full-information maximum likelihood and a two-stage least squares estimation to regress the impact of training participation on earnings correcting for the endogeneity of training participation. By using a broad list of employee and employer characteristics, I try to avoid omitted variable bias. Interacting training with all explanatory variables in the earnings equation allows me to calculate heterogeneous training returns for employees...