The effect of employee retention on the demand for on-the-job training

Abstract

Most models of the demand for on-the-job training do not consider on-the-job training in the context of the demand for other inputs. Furthermore, the impact on employee retention of industry structure, employee characteristics, and the presence of unions is not given a complete and unified treatment in the existing literature. The model developed in this study explicitly shows the effect of employee retention on the demand for both human and physical capital. We also have an analysis of how employee retention is affected by industry structure, employee characteristics, and the presence of unions. From our model, we derive the proposition that an increase in employee retention will result in reduced usage of physical capital and more intensive training of employees. Using data provided by the Bureau of Labor Statistics and the Bureau of the Census, this proposition is empirically tested. The results support the proposition. Our analysis of employee retention produced the proposition that employee retention at the industry level is directly related to the extent of unionization, the incidence of seniority provisions in union contracts, the average age of a firm's employees, the specificness of the employee's skills, and the number of firms in the industry; also we found that employee retention is inversely related to the tendency of unions to have as members persons who are employed in only one industry. Using data supplied by the Bureau of the Census and the Bureau of Labor Statistics, we empirically tested this proposition. The results confirmed the expected relationships except in the case of the extent of unionization and the incidence of seniority provisions.