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Professional Education Promotes Labour Productivity

Most Russian company owners invest in the continuing education of their employees, but not all of them. The lucky ones are 10-20% of all staff. Such spending looks risky even though the return on it is high. Continuing education increases salary by 8% on average, which is an indirect sign of the same improvement in the labour productivity of the educated staff, Pavel Travkin, Junior Research Fellow at the HSE Laboratory for Labour Market Studies, found

A lack of education and professional skills among the staff of industrial enterprises is one of the key business problems today. Surveys among company managers show that the lack of professional skills in workers is the second most important problem impeding labour production growth and, as a result, the growth of industrial production. An indirect sign of serious problems with competency is a considerable decrease in continuing employment in one position. While in 1994, one third of those employed had worked over ten years in one position, in 2005 one quarter of employed staff had worked for less than a year in one position.

In developed countries employers actively invest in the continuing professional education of their employees. According to a study by the World Bank, in member countries of the Organization for Economic Co-operation and Development (OECD) over half of all companies offer their staff continuing education of some type. But in Russia the level of investment in continuing education is much lower. One of the possible reasons for the low level of involvement of employees in education is the lack of output from education.

Pavel Travkin tried to find out whether this is true, through evaluating the influence of the continuing professional training received on the salaries of employees in Russia, since he believes that ‘an increase in salaries after continuing education courses is based on their increased productivity’. The study was the basis for Pavel Travkin’s Candidate of Science degree thesis ‘The influence of continuing professional education on employees’ salaries’.

The study was based on RMLS-HSE data from 2006 to 2011. The selection included over 40,000 people aged from 15 to 72, who were asked whether they had taken advanced training, professional training or other courses, including courses of foreign languages and in-service training. The research also used data from the company survey ‘Interaction between internal and external labour markets’, statistical data by Rosstat (Federal State Statistics Service), data from Economics Monitoring and Business Environment and Enterprise Performance Surveys (BEEPS). Based on this information, an empirical analysis of the scale of education in Russian enterprises was carried out.

Education is an award for work

The analysis led to a conclusion that Russian companies, as well as foreign ones, educate their employees. According to various data collected by Travkin, between 50 and 70% of companies organize training for their staff.

Innovative, growing and developing companies, who demand a high level of knowledge and competencies, do it more willingly than the others. At the same time, the level of involvement of employees in the process of education in Russia is on a relatively low level. The employers educate a relatively small number of usually high-qualified employees.

For example, in medium-sized and big companies, a little less than 16% of employees are involved in education. The least proportion of people who had taken courses are in the agriculture and fishery fields – about 4%. The highest share is in finance companies – 24.5%. Companies in mining, manufacturing, gas and water industries educate 22-23% of their employees.

‘The volume of staff training in a company directly correlates to the level of investment in staff development. The higher the investment, the more likely a company is to educate more people and the higher the level of continuing education’, Travkin says. At the same time, in medium-sized and large companies, which traditionally have more opportunities to invest in staff education, the share of employees who had received training at the employer’s expense is only 10-15%, while in OECD countries this indicator is 35-40% in average, and in Switzerland it reaches 60%.

Professional training increases revenues

Despite the fact that employers fail to educate their employees enough, there is a high return on education. According to Travkin, ‘the results of the empirical analysis of individual RLMS-HSE data from 2004-2008 clearly show the increase in Russian employees’ salaries after taking continuing professional education courses’.  In average, those who had taken courses in a company get, on average, an 8.3% increase.

At the same time, the return on continuing professional education in public sector is lower than in the private one – 5.14% vs. 9.75%.

‘This means that salary increases (and, accordingly, increase in labour productivity) are a direct profit from education both for employees and companies. At the end of the day, the employers profit from investments in human capital’, the author concludes.

State support is vital

There is only one question left – why, if education, according to the study, is profitable for employers, do they educate so few of their employees? According to Travkin, the situation may be due to the high costs of education for companies and the high risks of investing in human capital.

He suggests the state increases motivation for labour market participants to invest in education. Particularly, to co-invest in continuing professional education at developing and innovative companies, to create updated criteria for certification of various types of continuing education to reduce information imbalance, to cut state support for higher education institutions with low level of graduates’ knowledge, and allocate the exempted funds to support companies that educate their staff. ‘Since university graduates often lack knowledge and skills that are necessary on the workplace, such redistribution of funds would increase motivation for employers to educate their employees’, Pavel Travkin believes.

 

November 13, 2014