Thailand Law Journal 2009 Spring Issue 1 Volume 12

ARE EDUCATION AND TRAINING ALWAYS COMPLEMENTS? EVIDENCE
FROM THAILAND

Kenn Ariga, Giorgio Brunello[FNa1]

This paper investigates the relationship between education and employer-- provided training, both on-the-job and off-the-job, using a unique dataset drawn from a survey of Thai employees conducted in the summer of 2001. The authors find a negative and statistically significant relationship between educational attainment and on-the-job training (OJT) and a positive and statistically significant relationship between education and off-the-job training. Since the marginal monetary returns to OJT increase with education, the negative relationship between education and OJT suggests that the marginal costs of OJT are higher for the better educated, perhaps because the opportunity costs of the time spent receiving OJT increase with educational attainment.

The economic literature stresses the importance of schooling in increasing productivity. Schooling can affect productivity both directly, by improving basic skills, and indirectly, by influencing training. Are the better-educated more likely to receive employer-provided training? A positive association between education and training would stimulate individual productivity but would also have the socially undesirable effect of amplifying initial differences in the individual level of human capital in the labor market.

In a recent review of empirical studies on employer-provided training in the United States and the United Kingdom, Blundell et al. (1999) answered the above question in the affirmative and emphasized the strong complementarity between the three main components of human capital--early ability, formal education, and training. In another review, Leuven (2005) attempted to explain the empirical regularity that more educated workers participate more in training than do less educated workers. One *614 reason the better-educated receive more training is that they are easier to train (see Blondal et al. 2002). According to Thurow (1975) and Rosen (1976), education improves learning skills and reduces (marginal) training costs. Since optimal investment in training occurs when marginal costs are equal to marginal benefits, a reduction in marginal costs increases investment. [FN1]

The empirical relationship between education and training can vary, however, with the type of training. Lynch (1992) used U.S. data to distinguish between on-the-job training (OJT) and off-the-job training (OFFJT) and found a positive, statistically significant relationship between education and OFFJT, but no relationship between education and OJT. Focusing on the concept of over-education--which occurs when workers are in occupations that require less schooling than they actually have--Sicherman (1991) found that over-educated individuals received less OJT than individuals with lower education and interpreted this result as evidence that education and OJT are substitutes in the production of human capital. Since over-educated workers are more likely than other workers to quit and move to a more suitable job, employers are less willing to train them in firm-specific skills. Hersch (1991) obtained similar results and argued that the over-educated are less willing, or less able, to learn than are individuals with the suitable level of education.

The existing empirical studies focus mainly on developed countries. Schooling and training, however, are of perhaps even greater importance in developing countries, not only for increasing productivity growth but also for improving health and nutrition and reducing fertility and income inequality (see Berhman 1987, 1999). The current paper investigates the relationship between education and employer-provided training in Thailand, using the results of a survey of Thai employees conducted by a team led by one of the authors during the summer of 2001. The survey is a case study of 1,737 employees belonging to 20 large firms operating in four selected industries in the Bangkok area. These employees completed a questionnaire especially designed to elicit information on earnings, education, training events, and family background.

Following Lynch, in our investigation we distinguish between OJT and OFFJT. The former is carried out in the workplace and is likely to be more specific in its content than the latter, which takes place in the classroom either within or outside the firm. [FN2]

Empirical Set-up
When training is provided by the firm, a basic tenet of human capital theory is that the privately optimal investment is attained when the marginal costs of training, incurred by the firm during the training period, are equal to the marginal benefits, which are spread from the point of training to the end of the employment relationship. Using F for the flow of OFFJT and O for the flow of OJT, we can represent training incidence or intensity as

(1) <<Equation>>

(2) <<Equation>>

where Y is a vector of controls, both time-varying and time-invariant, <<mu>> is a time-invariant individual effect, <<epsilon>> are random errors, and the relationship between years of schooling E and training is made explicit. Equations (1) and (2) can be interpreted as quasi-reduced forms-- because education is potentially endogenous--derived from a standard model of inter-temporal profit maximization (see, for instance, Ariga and Brunello 2002).

Training generates private benefits by increasing individual productivity. Since this variable is difficult to observe, however, we follow the literature in assuming that individual earnings are proportional to productivity and estimate the Mincerian earnings function

(3) <<equation>>,

where X is a vector of controls, Tt = Ft + Tt-1 is the stock of OFFJT, Jt = Ot + Jt-1 is the stock of OJT, and <<eta>> is random noise. [FN3]

[FNa1]. Kenn Ariga is Professor of Economics, Institute of Economic Research, Kyoto University. Giorgio Brunello is Professor of Economics, University of Padova, CESifo Research Fellow, and IZA Research Fellow. The authors thank the TDRI (Thailand Development Research Institute), Andrea Bassanini, Edwin Leuven, Soichi Ohta, Fumio Ohtake, Hessel Oosterbeek, Nipon Poapongsakorn, Futoshi Yamauchi, and the audiences at discussions held in Amsterdam, NYU, Osaka (ISER), Kyoto, Siena, and Tokyo (ADBI) for comments and suggestions. The financial support of the Asian Development Bank Research Institute is gratefully acknowledged. This paper was written while the second author was visiting Kyoto University.

The data used in this paper, as well as the full questionnaire, are available for those interested in further scientific research at http://www.kier.kyoto-u.ac.jp/21COE/ADBI-KIERdatabase.html#english. (If the link becomes dated, search for "ADBIKIER Employee Survey on Education and Training for Selected Manufacturing Firms in Thailand and Philippines.") Corresponding author: Giorgio Brunello, Department of Economics, University of Padova, via del Santo 33, 35100 Padova, Italy; giorgio.brunello@unipd.it.

[FN1]. This view is not supported by a study of employer-provided training carried out by Groot, Hartog, and Oosterbeek (1994) for the Netherlands. These authors found evidence that marginal costs increase with educational attainment and argued that better-educated individuals demand more compensation to participate in training.

[FN2]. The economic literature often distinguishes between general and firm-specific training. While the skills produced by general training are fully transferable, those produced by firm-specific training are more idiosyncratic.

[FN3]. These definitions of training stocks assume no depreciation.

This article is published with the kind permission of Kenn Ariga and Giorgio Brunello. The article originally appeared in Volume 59, Issue 4, July 2006, of the Industrial and Labor Relations Review. Copyright Cornell University.