Market Failure in Training?

This book deals with on-the-job training (OJT) of employees. Given fast-changing technology and an aging labor force, many industrialized countries must consider whether a sufficient amount of investment is being undertaken. The papers in this volume offer new evidence on the amount of OJT that occurs, and a re-examination of standard economic theory. One key assumption in former research was that employees themselves would absorb the cost of "general" training, ie; OJT that produces portable skills or knowledge. However, that assumption remained empirically untested. New surveys that have measured OJT directly now permit testing of this assumption. Results, as reported in several chapters of this book, fail to confirm this assumption. It appears that employers are not able, in fact, to "sell" OJT to employees. Markets therefore do not provide enough OJT. Even if employees do absorb some of the cost of their own training, they may not buy enough of it, because the risk associated with such investment cannot be hedged or insured. New proposals are presented to address this problem. Learning in workplaces includes solving problems and improving the productive process. Some chapters in this book describe the features of organizations where such learning occurs. Externalities associated with certain of these features, in particular employment security, may also give rise to market failure.