The wage returns to on-the-job training: evidence from matched employer-employee data

Rita K Almeida,Marta Faria

doi:10.1186/2193-9020-3-19

Abstract

Skills shortages and skill mismatch are a pressing concern for policymakers in several developing countries, and in East Asia specifically. Providing on-the-job training can be an effective policy tool to shape the skills of the existent workforce to the specific needs of the firms. This paper explores a unique data set of matched employer-employee data for Malaysia and Thailand to estimate the wage return to on-the-job training in these two countries. Exploring propensity score matching estimates, we show that the average wage returns to on-the-job training are 7.7% for Malaysia and 4.5% for Thailand. Furthermore, we find evidence that the wage returns to on-the-job training are higher for males than for females in Malaysia and that, for both countries, returns are higher for workers with at least secondary education. J24; J30

Highlights

Many economists have emphasized the importance of human capital accumulation for growth (e.g. Lucas, 1988; Romer, 1990; Aghion-Howitt, 1998)
Our findings show that the wage returns to the investment in job training decrease significantly as one controls for worker’s and firm’s characteristics
We find that on-the-job training is associated with increases in individual wages of 7.7% in Malaysia and 4.5% in Thailand

Summary

Introduction

Many economists have emphasized the importance of human capital accumulation for growth (e.g. Lucas, 1988; Romer, 1990; Aghion-Howitt, 1998). This paper explores a matched employer-employee data set with unique information on formal firms and their workers for two developing countries with very different levels of development, Malaysia and Thailand1.

Results

Conclusion