Effects of state-sponsored human capital investment on the selection of training type

Abstract

Since the 1990s, firms in Japan have reduced their human capital investment in the workplace to minimize costs. Moreover, in response to the increase in the number of non-regular employees and turnover rates, workers need to have greater incentive to make the self-motivated investment in themselves for their self-protection. In this study, we first estimate the effects of workers’ self-motivated investment in themselves on wage rates. Next, we explore who is likely to participate in which training type and accordingly estimate the effects of the self-motivated investment on wage rates by training type. Our estimates controlling for individual-level fixed-effects indicate that the return is significantly positive and particularly high for practical training related to workers’ current jobs, and regular workers tend to self-select these higher-returns programs, while non-regular workers are more likely to enroll in lower-returns programs, such as schooling. This trend in investment in oneself could potentially increase the wage inequality between regular and non-regular workers through the self-selection of training types. Our estimates reveal that receiving the training and education benefit raises the likelihood for workers to participate in a high-return training program regardless of whether they are non-regular or regular workers. This suggests that government benefits on self-investment change workers’ self-selection of training type and serve to promote practical trainings that lead to high returns.