Almost 10% of America is unemployed. The desire for any politician to spend money is like a Siren song to Odysseus. Bills that will spend taxpayer dollars for education and retraining are sure to make their way through Congress. Should taxpayers pay for it, the firm pay, or is it better for people to pay for their own retraining and education?
The book I have been reading, Personnel Economics In Practice has a Chapter on Investment in Skills. Pretty interesting stuff in this type of economic climate.
Certainly, the gut answer is of course the firm should pay-or the government since they have an interest in increasing the value of human capital. The short answer is that they don’t realize the full benefit of those investments, but the person that receives the education or training does. Plus, they keep that benefit for life-even if they change jobs or careers.
Think of it differently. If your employer pays for a degree, or some job training-is it applicable to just that employer? Or can the person use the knowledge somewhere else?
Is the value of the employee increased or decreased because of the degree or education?
Certainly, the training or degree follows the employee for life, and their value should be increased. If their value isn’t increased, why would they spend the time to retrain themselves? Opportunity costs and economics rule even in human capital decisions.
Why would an employer want to pay, or should pay? If an employee accepts lower pay while they are engaging in retraining or education, then the cost/benefit analysis can be worth it for the firm. Many companies have contracts that spell out how long the employee will work at the firm after degree completion-which in effect is lower wages since the employee’s market value is presumably higher.
If an employee is a very strong match for the firm, then the firm might want to pay for some tuition. Both parties expect to be in the relationship for a long time. Everyone wins, since the employee benefits and the firm captures all the benefit of its investment. However, in today’s environment, most people switch jobs and companies several times. So, the match concept doesn’t happen very much.
If a firm wants to entice high quality employees, it might use tuition matching for recruiting. Many firms offer partial reimbursement. Many contingencies might come with it, like achieving a grade or completing the program in a timely manner. Designing programs like this, and figuring out how much the company pays will also be one determinant of who applies to your firm. That concept is for another blog post.
In very rare cases, there might be tax advantages for the firm to pay for things. The firm derives a nice benefit where the employee cannot. You may be able to write off your tuition if you pay for it yourself. Depends on a lot of variables, but it’s worth some research.
It’s worth noting that when an employee engages in investment in themselves, the employer always faces market pressure to pay the employee what they are worth. Otherwise the company risks losing that person to a competing firm.
With regard to the government paying, it is generally a poor choice for a government to pay for anything except a basic K-12 education. The government doesn’t get the benefit. Government programs are nearly always full of fat, and are not efficient. They wind up raising the costs off the things they are trying to fix. Plus, as a taxpayer, no one realizes the tangible benefits. There is a higher tax burden from the debt that is incurred from the government program. It can be argued pretty strongly that the K-12 education offered by the public school system in the US is pretty dismal when compared to private options.
Hence, you should always invest in yourself. Best investment you can make. You get the benefit, and so does everyone you come in contact with.
****concepts of this post come from the book, Personnel Economics In Practice.