Workers’ Participation in Training and Import Competition: Evidence from the USA

• Published date: 01 June 2017
• Date: 01 June 2017
• Author: Vasilios D. Kosteas
• DOI: http://doi.org/10.1111/twec.12403

Workers’ Participation in Training and

Import Competition: Evidence from the

USA

Vasilios D. Kosteas

Department of Economics, Cleveland State University, Cleveland, OH, USA

1. INTRODUCTION

PAST research has shown that training constitutes an important source of wage increases

(Veum, 1999). Much of the research on training provision and participation has focused

on explaining why it is that firms pay for general training (see for example Acemoglu and

Pischke, 1998; amongst others), while other studies work towards understanding the determi-

nants of enrolment in training. Relatively little attention has been paid to the possibl e impact

of foreign competition on training provision and enrolment. While the substantial literature

examining the labour market effects of trade has focused primarily on employment, wages

and wage inequality, it is also possible that rising foreign competition might result in grea ter

enrolment in training by inducing firms to require more training in order to remain competi-

tive and preserve market share.

It has been shown that trade can spur innovative activity and technology adoption (Bloom

et al., 2008; Gorodnichenko et al., 2010) which in turn leads to greater training provision (Zeyti-

nonglu and Cook 2009, Xu and Lin. 2011). Even when not compelled to do so, increased access

to training in the workplace might induce workers towards greater participation in training

events if either the financial or time cost of participating in employer-sponsored training is lower

than alternative training opportunities. Independent of these training provision effects, the effect

of greater product market competition on participation in training depends on how it affects the

expected returns to investing in human capital acquisition. Workers who believe the greater

competition increases the likelihood of suffering a layoff and also believe that training will not

help them retain their job or find a new one may be less likely to enrol in training events. By con-

trast, workers who believe that training will help them keep their jobs in the face of higher lay-

offs or find a new one if they are in fact laid off are more likely to participate in training. Thus,

the effect of foreign trade on worker’s training decisions may not be uniform.

The present paper contributes to the literature by analysing the effect of foreign product mar-

ket competition on the amount of time spent in training programmes by US workers in the manu-

facturing sector. This is the first paper to focus on the link between foreign competition and

participation in training by US workers. Controlling for training provision by the firm, we find

that workers in industries facing greater foreign competition are less likely to enrol in training

overall and specifically in training related to technology adoption or career advancement with

their current employer. The negative relationship between foreign competition and training

related to career advancement is robust to controlling for individual fixed effects.

There are relatively few studies examining the link between job training and product mar-

ket competition. We are aware of only one paper investigating the link between foreign com-

petition and training using US data. Li (2010) examines the effect of foreign competition on

the incidence of company provided training using the 1988–96 waves of the NLSY79 data,

restricting his analysis to the sample of men only. The author finds that rising imports result

©2016 John Wiley & Sons Ltd 1089

The World Economy (2017)

doi: 10.1111/twec.12403

The World Economy

in a lower probability that a worker’s employer will offer company-sponsored training. Li’s

paper focuses on the relationship between training provision and foreign competition, while

the current paper’s focus is on training participation and foreign competition.

A handful of papers investigate the link between product market competition and training

using Canadian data. Using the Workplace and Employee Survey (WES), Zeytinoglu and

Cooke (2009) find that workers in firms implementing information technology and those fac-

ing competition from foreign firms are more likely to train. Xu and Lin (2011) also employ

the WES data and report a positive impact between international competition and participation

in employer-provided training, in addition to a positive link between technological innovation

and training incidence. It should be noted that the foreign competition variables used in these

studies are developed from self-reported measures of the perceived degree of foreign competi-

tion faced by the firm. Tat-kei and Ng (2011) find a positive impact on training provision

from competition in general.

There are also a few papers examining the link between globalisation and educational

attainment. For the United States, Hickman and Olney (2011) show that both offshoring and

immigration lead to higher enrolment at community colleges. Using Mexican data, Atkin

(2012) finds the growth in export manufacturing from the mid-1980s through the 1990s leads

to an increase in the high school dropout rate.

The present paper also ties into the literature examining the effects of foreign competition

on labour markets by analysing worker-level data. This is a relatively small, but growing litera-

ture as older studies in this area have generally relied on industry-level data. Worker-level data

has been used to investigate the effect of globalisation on wages (Kosteas, 2008; Ebenstein

et al., 2011), offshoring on the skill premium (Tempesti, 2010), the sensitivity of wages to the

unemployment rate as foreign competition increases (Bertrand 2004) for US workers in the

manufacturing sector and the effect of trade-induced job displacement on wages in occupations

receiving these displaced workers (Kosteas and Park, 2015). As with the present analysis, each

of these studies merges industry-level trade data with individual-level data using either NLSY

(Kosteas, 2008; Kosteas and Park, 2015), CPS data (Bertrand 2004, Ebenstein et al., 2011 and

Tempesti, 2010) or the Panel Study of Income and Dynamics (Kosteas and Park, 2015).

2. THEORETICAL BACKGROUND AND ESTIMATION STRATEGY

While theorists have tackled the question of how competition affects firm behaviours such

as innovation, the theoretical literature is relatively silent on how product market competition

affects workers’ decisions about whether (and how much) to invest in their human capital via

job training. However, the models dedicated to analysing firm behaviour do provide some

important insights for the question at hand. Ultimately, the issue is whether greater competi-

tion raises or lowers the return to training. The answer rests on the tension between two

mechanisms. First, greater competition from foreign producers might increase the level of job

displacement in the worker’s industry (Kletzer, 1998 and Addison et al., 2000), which

decreases the expected return to training by lowering the expected amount of time spent

working. At the same time, the probability an individual worker is laid off should decrease

with training. In industries characterised by low levels of layoffs and job disp lacement, this

benefit from training may be relatively small. However, in industries characterised by high

levels of job loss, the job saving aspect (from the worker’s perspective) of training may be

relatively large. Furthermore, the relative strength of these two effects is likely to vary across

individuals. More productive workers may be able to keep from being laid off by investing in

©2016 John Wiley & Sons Ltd

1090 V. D. KOSTEAS