Lower levels of skills and company training are often blamed for low levels of productivity in the UK relative to competitors such as Germany and the US. But can you quantify this effect? Research led by John Van Reenen of the Institute for Fiscal Studies has produced some dramatic results. He finds that doubling the proportion of workers trained in an industry from ten per cent (the UK average) to 20 per cent increases industrial productivity by as much as 24 per cent. What is more, off-the-job training has much larger productivity effects than on-the-job training.
Van Reenen and his colleagues have also examined the interaction between skills, technology and the organisational changes brought in by innovative human resource management practices. His data on individual firms in the UK and France over the past 20 years suggest that organisational and technical change are held back by a lower level of skills. Training and educational improvements can have a big effect on productivity because they encourage the adoption of better technologies and changes in workplace practices, such as decentralisation and teamworking.
When examining productivity within individual companies, the research finds less significant effects of training than at the industry level, but this outcome may be related to 'spillovers' between firms. Training by one firm will typically benefit others for a variety of reasons. First, individuals may simply move, taking their skills with them. Second, trained workers may contribute to innovative activity, such as the generation of new processes and products - the benefits from these innovations will spread far beyond the firm that innovates first.
This is the first econometric study of the impact of training on industrial productivity in the UK. The results confirm that the private sector, left to its own devices, may fail to provide enough training since no single individual or firm has enough incentive to invest in training. They strongly reinforce the current policy emphasis on providing greater incentives to train in the UK economy.