How do firms' and individuals' incentives to invest in human capital vary across groups?

Paper presented at the joint EC-OECD conference on "Human Capital and labour market performance: evidence and policy challenges", Brussels 08/12/2004, web-site: http://ec.europa.eu/employment_social/employment_analysis/human_sem_2004_en.htmPast research shows that training opportunities are unequally distributed across workers, with workers who are already in a better position in the labour market having more opportunities to acquire new skills. We decompose the downstream training market in order to trace the extent to which differences in the provision of employer-sponsored training across groups of workers are due to demand (by employees) or supply (by employers). The empirical results suggest that employers tend to exclude women, immigrants, young employees, involuntary part-time and temporary workers, workers in low-skilled occupations and workers with low literacy, when selecting which employees to train. By contrast, lower demand appears to account for lower training participation of older and less educated workers. In the case of older workers, labour market imperfections affecting the distribution of training benefits and the length of employers' and employees' pay-back periods are likely to be behind this pattern. In the case of less educated workers, credit constraints and/or training market imperfections – due to lack of training information and contractibility between employers and employees – may partially explain this finding. However, noneconomic factors, such as lesser motivation or bad pedagogical experiences, must also be taken into account. Finally, demand does not appear to vary with firm size or sector. However, supply rises with firm size, perhaps due to lower unit costs of training, larger benefits, and greater access to credit and information for large firms