Do Train‐Or‐Pay Schemes Really Increase Training Levels?

Abstract

Reacting to perceived market failures leading to under‐optimal levels of firm‐sponsored training, governments all over the world have stepped in with various policy instruments to alleviate this problem, using incentives such as regulation or co‐financed schemes directed at firms or at individuals. Despite the widespread use of these schemes, rigorous empirical evaluation of such policies is uncommon. In this paper, we provide a careful evaluation of a reform in a train‐or‐pay scheme used in Canada that exempted medium‐sized workplace from the training requirement. Our identification strategy involves comparing changes in training levels in medium‐sized workplaces, before and after the reform, to changes for both smaller and larger workplaces. We also compare relative changes in training intensities to those observed in a neighboring province in which no such changes took place. We find the policy had no impact on training levels but caused firms to change their human capital investments portfolio, substituting informal and formal training.