IMPLEMENTACIÓN ANDROID

This section investigates the business cycle properties of UK on-the-job training.46

The literature generally assumes training to be countercyclical, see e.g. DeJong and Ingram (2001), Kim and Lee (2007), and Brunello (2009). Empirical evidence suggests that companies invest more on training when they are less competitive than their peers and when the cost of foregone output is relatively smaller. Since about half of training costs are represented by opportunity costs (i.e. trainees’ time allocated to training rather than producing), when consumer demand is low, training costs are lower. Thus the theory predicts that firms should be more inclined to provide training. Yet, the theory also provides reasons why 46_{The literature identifies the business cycle as the fluctuations in economic series that have}

a periodicity of less than 33 quarters (see e.g. Kydland and Prescott (1982) King and Rebelo (1999)).

training should be cyclical. In a recession, the short-term benefits of training are expected to decrease as consumer demand weakens. Whether the first positive effect outweighs the negative one is an open empirical question.

On a practical level, the first issue is to define precisely which training activities are under investigation. Brunello (2009) argues that apprenticeships, or any ini- tial workplace training of long duration, are drastically different from on-the-job training, the latter generally being a short-term activity. He maintains that an economic slowdown affects apprenticeships less intensely than training of senior employees.

In his view, apprenticeships is less influenced by the business cycle because new hires are relatively cheaper and their formation will be completed in about two years. However, the expected duration of the downturn plays a crucial role to the validity of this argument. The counter-cyclicality thesis holds as long as the economy recovers rapidly. If the recession is long-lasting, the returns from both apprenticeships and training activities will be diminished and businesses may cut drastically on training investments.

Evidence for the cyclical behaviour of training is available mostly for the US. Among the many, Einarsson and Marquis (1998) report that their empirical proxy for skill accumulation is negatively related to aggregate output, with a correlation

coefficient of -0.187.47

With respect to the European countries, Bassanini et al. (2007) is again an important source of information. Using a multi-country panel with annual data on training, output gap, and unemployment, they show that training has an elasticity with the output gap which lies between -2.8 and -7% depending on the specification

they employ.48 _{As part of my research, I test whether on-the-job training is}

procyclical in the UK economy.

1.5.1 Empirical evidence for the UK

To study the business cycle properties of training for the UK, I employ the infor- mation on training reported in the QLFS and macroeconomic time-series available from the ONS website. I seasonally adjust all the series with presumed or evident

seasonality with the X-13 ARIMA-SEATS toolkit.49 For a deeper understanding

of UK business cycle I consider also the behaviour of other relevant economic indicators, such as consumption, investments and labour market indicators.

Figure 1.4 shows the cyclical and trend component of training participation and 47_{They also notice that a RBC model, carefully calibrated, produce a much negative cor-}

relation between output and human capital investment (very close to -1). The only solution they find is to introduce a random independent process for human capital depreciation. This assumption drastically reduces the correlation between output and training investments.

48_{They obtain similar results when they use the unemployment rate as a proxy for the business}

cycle. In this case, the coefficient of interest is positive.

49_{Training and labour series show a clear seasonal pattern, together with GDP and gross fixed}

GDP. It can be noted that training is less volatile than GDP, although the great recession is the main phase when GDP fluctuations are particularly larger than training ones, and that there is no clear correlation between the two series.

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 quarters -0.03 -0.02 -0.01 0 0.01 0.02 0.03 0.04 residuals GDP Training

Figure 1.4: Hodrick-Prescott residuals of training and GDP series

I complement the graphical analysis with Table 1.9 which reports the business cycle moments of the UK economy. To this purpose, all data have been detrended

with a HP-filter with λ = 1600 as commonly employed in the RBC literature. The

the correlation coefficient is small; (ii) after seasonally adjusting and detrending data, training has a low standard deviation; and (iii) the skill premium is also almost uncorrelated with output, yet it has a very high variability.

Table 1.9: UK business cycle moments

std_{(xi),% std(xi)/std(y),% corr(y, xi) ρ(xi) N}◦ obs.

output,_(y) 1.16 1.00 1.00 0.89 96 consumption 1.06 0.91 0.77 0.86 96 investments 3.89 3.35 0.83 0.73 76 skill premium 3.66 3.15 -0.02 -0.07 84 wage 0.88 0.76 0.08 0.56 83 skilled training, 4w 0.34 0.29 -0.01 0.25 85 unskilled training, 4w 0.22 0.19 -0.05 0.50 85 skilled training, 3m 0.59 0.51 -0.06 0.59 86 unskilled training, 3m 0.39 0.33 -0.10 0.63 86 weekly hours 0.43 0.37 0.44 0.37 95 employment 0.38 0.32 0.69 0.85 96

Interestingly, the business cycle properties of training look unstable over time. To highlight this, I split the sample for estimation in five year intervals and com- puted the correlation of training and GDP for each sub-sample. As can be ob- served in Table 1.10, the correlation appears to be stronger and negative during the decade 1995-2005. The correlation is weaker in between 2005 and 2015. This holds true when I consider the training participation rate computed over the last quarter and over the last month. Moreover, using growth rates instead of HP-

filtered residuals affects these results only marginally, and not systematically.50

50_{The standard deviation, almost constant throughout the estimates, reinforces the idea that}

Table 1.10: Correlation between training participation and GDP

growth rates HP-residuals N° obs. 1995-2005 2005-2015 1995-2005 2005-2015

training last 4 weeks -0.01 0.09 -0.24 0.03 42

std 0.158 0.157 0.153 0.158

training last 3 months -0.18 0.07 -0.15 -0.05 42

std 0.156 0.158 0.156 0.158

When considering the business cycle properties of training, one may ask what was the effect of the great recession on training. As discussed above, several authors, e.g. Blatter et al. (2009), claim that the length of a crisis has important consequences on the cost-benefit analysis of training provision. A long period of low demand and high financing costs can force firms to reduce training investments. In the next subsection, I verify if this has happened in the UK economy during the great recession (2007-2012).

1.5.2 Training participation during the great recession

At the outset of the great recession, several UK institutions feared a dramatic fall in training participation rates, and several business confidence indexes showed

that managers expected a broad reduction in training activities.51 Yet, the UK

is √

(1−ρ2₎

(n−2), where n stands for the number of observations and ρ for the correlation coefficient. 51_{For example, in 2008, the Confederation of British Industry, the Trade Union Congress}

and other institutions have cosigned an open letter pleading with UK business managers not to cut training during the recession. Both the CBI Industrial Trends Survey and the Quarterly Economic Survey, run by the British Chamber of Commerce, have a section dedicated to training activity expectations. These surveys foretold a drastic reduction of training investments.

National Employer Skill Survey (NESS) figures suggested that most of the es- tablishments intended to maintain pre-crisis training participation levels. Indeed, QLFS data shows that the great recession did not have a significant effect on train- ing rates. As reported by the UKCES report (2013) and by Felstead et al. (2013), the overall training participation rate shows a marked long-run declining trend. However, the fall in training has begun in 2002, and it has not been influenced by the great recession.

The literature cited above suggests that the recession has influenced how train- ing is organised and provided to workers rather than affecting the overall training provision. Felstead’s interviews of employers and HR managers reveal that they switched towards on-line, or digital, courses, and they organised on-the-job train- ing rather than paying for external off-the-job formation. Many respondents have emphasised the importance of managing more efficiently the resources. According to Felstead and his colleagues, enterprises have training floors, i.e. must-have training activities that, for a reason or another, cannot be remitted. In particu- lar, they argue that six constraints sustained the firms’ demand for training: (i) compliance with legal requirements, (ii) operational needs, (iii) skills shortages, (iv) market competition, (v) managerial commitments, and (vi) customer demand needs. Due to these constraints, the great recession did not affect the training

participation rate nor the total training expenditure.52