Wages and On-the-Job Training

By Mary Van Pamel

Overview

Every organization has different goals, ideas, and methods they wish to implement in order to have their business run smoothly. On-the-job training (OJT) is one method organizations depend on to correctly train their employee’s and make sure their employees are fit for the position. Instead of speaking to a new employee about what their job requirements are, managers or supervisors train the employee as they are working the actual job. This is what OJT is meant to do. Although many organizations view OJT differently, two common predictions remain. One prediction is that “on-the-job training should increase wage growth, and second, on-the-job training should lower the starting wage” (Barron, Berger, & Black, 1999).

Relevance

On-the-job training is important for employers, as well as new employees, because an employee will be more productive if he or she is trained properly. In regards to general training and wages, Barron et al. (1999) believes “the worker pays the full training costs by accepting a lower starting wage and receives higher future wages in return.” However, if the OJT is specific to one firm, Barron et al. (1999) believes that “the worker and the firm share the costs and the returns to training.” There have been ideas accusations that OJT and wage growth are positively correlated, however, it is unclear to make such accusations since it truly depends on the commitment of the trainee to OJT and succeeding in the organization. Many situations exist whereby OJT and wages differ because of age, education, and gender.

Equation Analysis

To test the theory that individuals who complete OJT become more productive, which in turn allows their wages to become higher than the individuals who do not complete OJT, Maranto and Rodgers (1984) created a standard human capital model. The two modifications to this model are: (1) “The dependent variable for the anal-ysis of primary interest is a measure of productivity rather than wages,” although the wages are analyzed “in order to compare the effect of tenure on productivity with its effect on earnings” (Maranto & Rodgers, 1984). (2) “The estimating equations pool cross-sectional and time-series data” (Maranto & Rodgers, 1984). The equation from Maranto and Rodgers (1984) is as follows:

Recovery = B0 + B1*EDUC + B2*PREV EXP + B3*PREV EXP² + B4*TENURE + B5* TENURE² + B6*X + e

Where “RECOVERY = wages recovered/wages owed X 100; EDUC = years of schooling completed; PREV EXP = potential years of work experience prior to employment with the Wage-Hour Division, computed as (AGE – EDUC – TENURE – 6); PREV EXP² = potential previous years of work experience squared; TENURE = years of experience with the Wage-Hour Division, calculated as the difference between the date the wage claim was closed and the date of hire by the division; TENURE² years of experience with the Division squared; and X is a vector of control variables” (Maranto & Rodgers, 1984). A very important aspect to OJT is the effect of company tenure on wages and overall productivity (Becker & Hills, 1980). Studies can review at the tenure of an individual employee and realize that the higher the tenure of an employee is, the higher their wages and productivity levels will most likely be. Lifetime wage differences are often overlooked due to the fact that many individuals fail to consider the high wages associated with the years after OJT (Becker & Hills, 1980).

Class Comparison

The entire idea that OJT is a direct correlation to higher wages relates back to the many theories discussed in class. The recruiting process of a potential employer requires the Human Resources (HR) Department to generate a large applicant pool for openings in an organization. After the recruiting process is finished, the selection process begins. Selecting employees requires the HR department to choose qualified individuals to fill the job openings in the organization. Once these individuals are carefully selected, some organizations require OJT to correctly train their employees. OJT only works best if it is well-planned, well-executed, and if the supervisor or manager running the training is able to teach and show the employees exactly what to do (Jackson & Mathis, 2011). Once employees begin OJT, they can reassure themselves they are in the correct person-job fit by assessing that their knowledge, skills, and abilities match the characteristics of the job they were specifically hired for (Jackson & Mathis, 2011). Once employees realize they are in the right position through OJT, they can work to their fullest potential which will overall increase their wage.

Take-Away Points

After reviewing the research, individuals should be able to judge how different factors affect the overall wage of employees who utilize OJT at their organizations. The education, experience, and tenure of an individual all affect the overall wages an employee ultimately receives. If an individual receives OJT, it is more likely that their wages will be higher than a coworker in the same position who did not have the advantage of OJT. Individuals can use this information in the workforce now, as well as in their future careers, by realizing that what you put in to OJT will determine their overall outcome at their organization. Although many factors influence their wages, it is the time, effort, and motivation that an employee is willing to put in to receive a positive outcome. Hard work truly pays off!

References

Barron, J.M., Berger, M.C., & Black, D. A. (1999). Do workers pay for on-the-job training? The Journal of Human Resources, 34(2), 235-252. Retrieved from http://www.jstor.org/stable/146344

Becker, B.E., Hills, S.M. (1980). Teenage unemployment: some evidence of the long-run effects on wages. The Journal of Human Resources, 15(3), 354-372. Retrieved from http://www.jstor.org/stable/145288

Jackson, J.H., Mathis, R.L., (2011). Human resource management (13^th ed.). Mason, OH: South-Western Cengage Learning.

Maranto, C.L., Rodgers, R.C. (1984). Does work experience increase productivity? a test of the on-the-job training hypothesis. The Journal of Human Resources, 19(3), 341-357. Retrieved from http://www.jstor.org/stable/145877