Training, Productivity and Underemployment in Institutional Labour Markets

• Published date: 01 February 1993
• Pages: 47-58
• Date: 01 February 1993
• DOI: https://doi.org/10.1108/01437729310024269
• Author: Clair Brown
• Subject Matter: Economics

Training,

Productivity and

Underemployment

47

Training, Productivity

and Underemployment in

Institutional Labour Markets

Clair Brown

University of California at

Berkeley,

USA

An Institutional Framework

In an institutional model of the labour market, underemployment is assumed

to

be

a

basic characteristic, so that capital is more scarce than labour (see[1-9]

Table I). A worker's productivity is determined by access to capital, training,

and protected markets, as well as by personal effort, already acquired skills,

and innate ability. For a given level of

skill

and effort, a worker's productivity

depends on his or her

job,

since the job determines the worker's access to

resources (including capital and market rents) and

training.

Job placement thus

determines the worker's long-run productivity, bargaining

power,

and earnings.

The productivity of a firm's job structure reflects the firm's past investment

decisions, which determine the technology used

in

the product design and capital

stock, and the demand for the firm's product, which reflects macroeconomic

conditions.

This is

in

contrast to

a

neoclassical labour market, where prices allocate labour

so

that competitive forces produce full employment

in

the

long

run.

A

worker's

productivity is a result of individual human capital decisions, both in investing

in

education and on-the-job training. Observed differences in lifetime earnings

primarily reflect differences in preferences and abilities. On-the-job training is

an investment made on the basis of profit maximization, with the costs and

returns rationally assigned to the firm or employee. The firm's investment

decisions will not influence workers' productivity, since the firm will locate its

capital globally to equalize wages and marginal products.

Training in an institutional world reflects three important economic structures.

The

first

is the labour market structure which simultaneously forms and rations

workers' skills. The second is the firm's organizational structure, including the

training process, which shapes the demand for, and use of, labour. The third

is the macroeconomic structure, especially the institutions shaping

unemployment and investment, which governs the economy. The first two

I am indebted to my colleagues, Michael Reich, David Stern, and Lloyd Ulman, from whom

I have learned during our joint research project on training and employment systems in the USA

and Japan. This research was supported by the Institute of Industrial Relations at the University

of California, Berkeley, the Bureau of Labor-Management Cooperation at the USA. Department

of Labor, and the Pacific Rim Foundation of the University of California. This article does not

necessarily represent the position of the sponsoring agencies.

International Journal of Manpower,

Vol. 14 No. 2/3. 1993. pp. 47-58.

© MCB University Press.

0143-7720