Ⅰ. Background and Purpose of Research
□ Background of Research
◦ This study begins with the question of why Korean companies would not invest in education and training.
- According to the previous corporate education and training decision theories, the low investment by Korean companies in education and training was explained by the fact that companies are using low level technology. Also, the system for managing market failures in the labor market is not working properly.
- Previous explanations are based on the microscopic foundation that economic agents only make decisions with the economic rationality of maximizing self-interest. However, labor contracts have inherently incomplete contractual attributes. Corporate investment in workers ' education and training only exacerbates the imperfection of those labor contracts.
- The skills acquired through education and training belong to the workers. Therefore it is impossible to establish full rights to ownership. It is because, although the company bears the cost of education and training, the skills or human capital gained from investments in education and training belong to the workers.
3. Why don’t Korean companies invest in education and training?
▸Lead Researcher: Ga Woon Ban, Research Fellow Tel: 044-415-5176 / e-mail: gwban@krivet.re.kr
Summary
This study, through EU and OECD country comparison, presents objective evidence that investments by Korean companies in education and training are low in terms of workers' participation, time and cost of education and training, and size of companies. Putting aside the problem of the low supply and demand of skills that produced low returns on investment in education and training, Korean firms' small investment in education and training was due to little trust between labor and management. This meshed into distrust in the labor-management relationship, hence psychological mechanisms for overcoming incomplete contracts, or micro-coordinating measures not functioning correctly in the workplace. Based on the results of this analysis, this study proposes a new corporate education and training model that emphasizes workers' reciprocity and trust of management.
▸Keywords: Education and Training, International Comparison, Reciprocity, Trust
□ Purpose of Research
◦ This study aims to complement the existing investment theory for corporate education and training by introducing reciprocity and trust of management based on workers’ social preferences.
- Previous theories, including human capital theory and institutional theories, presume that actors are economically rational. They then analyze various institutional factors in the labor market that explains investment decisions on corporate education and training, such as credit constraints, information asymmetry, and wage compression.
- This study aims to explain the education and training investment of companies by relaxing the assumptions about the utility function of the actors (especially the workers) themselves, by incorporating social preferences into the utility function and including the trust of the management in the model.
- This means that the interactions and relationships between economic actors are brought into the theoretical framework, and it implies that social capital, such as trust, in addition to economic profit and loss, plays an essential role in corporate education and training decisions.
◦ As a policy proposal, a new model for corporate education and training that emphasizes the reciprocity of workers and the trust of management is suggested
- Beyond the rationality thesis, which maximizes the economic interests of economic people, we propose a decision model for corporate education and training that considers interactions among economic actors.
Ⅱ. Main Research Contents
1. Research Contents
□ Main Analysis and Research Method
◦ Review of Previous Research and Suggestion of Analysis Model
- Reviewed previous research on investment in corporate education and training, concentrating on studies of human capital theory and institutional theory and established a new model of study by reviewing trust and reciprocity research.
- New decision-making model for corporate education and training: extended the limits and utility functions of previous economic theory and explored the effect of workers' social preferences on management investment decisions on education and training through game theory framework.
Through this, illustrated a new corporate education and training decision-making model.
◦ International Comparison of Korean Companies’ Education and Training
- Provided objective evidence that Korean companies have less education and training compared to companies in the EU: using original data from the Ministry of Employment and Labor’s
(MOEL) Corporate Vocational Training Survey and Eurostat’s Continuing Vocational Training Survey (CVTS), compared education and training support provided by Korean and EU employers.
- Education and training investment behaviors of firms are compared and analyzed by the participation rate of workers, investment time and cost, and company size.
◦ Analysis of Determinants of Corporate Education and Training Using The Programme for the International Assessment of Adult Competencies (PIAAC) Survey
- Conducted an empirical analysis using the OECD's PIAAC data to determine whether individual workers' trust and managers' trust tend to increase workers' education and training opportunities.
◦ Analysis Using Corporate Vocational Training Survey and Perception Survey
- Using the data from MOEL's 2017 Corporate Vocational Training Survey demonstrated how a trust relationship between workers and management affects a company's education and training investment.
- Through the focus group interview, conducted the perception study on corporate education and training from the perspective of the workers and management. Through this, we investigated the cause of poor education and training in Korean companies.
◦ Analysis of Determinants of Corporate Education and Training Using Workplace Panel Survey (WPS)
- Using Korea Labor Institute’s WPS survey data, we analyzed how trust in the collective labor-management relations, not individual employment relations, affects a company’s education and training investment.
2. Research Results
□ New Education and Training Decision Model
◦ Corporate Education and Training Decision Model Considering Reciprocity and Trust
- The introduction of reciprocity and trust of management based on the social preferences of workers complements the existing theory of corporate education and training investment theory.
- Workers' social preferences influence learning effort, work effort, and job retention. If these factors affect the firm's profit and loss calculation for education and training investment, how motivated employees are by reciprocity, and how confident managers are with this reciprocity assessment or have trust, will become decisive factors for education and training.
- Of course, trust and reciprocity, as confirmed in the game theory analysis of this study, affects the company's education and training investment decisions as they interact with various skill supply and demand factors, such as how skill-friendly the production process is and how high the incumbent's learning skill is. On the other hand, trust between labor and management can be more relevant when horizontal power distribution is possible between labor and management.
□ Analysis by Major Topics
◦ Comparison of Education and Training between Korean and EU Companies
- As a result of comparing education and training between Korean and EU companies in 2015 using MOEL’s Corporate Vocational Training Survey and Eurostat's Continuing Vocational Training Survey, the level of education and training of Korean companies, in terms of participation rate of workers, time and cost of education and training, and company size, was found very low.
- The share of employees who participated in annual education and training is 30.8%, which is lower than the EU average of 40.8%. Compared by company size, Korea participated less than EU average in all size of businesses with 24.3% in Korea and 30.0% in EU for small businesses (10 to 49 persons), 32.2% and 37.2% for medium-sized companies (50 to 249 persons), 35.3%
and 47.7% for large companies (over 250 persons), respectively.
- Korea's education and training hours are 6.5 hours per employee per year, which is shorter than the EU average of 10.0 hours. The Korean and EU averages of small and medium-sized enterprises (SMEs) were 4.1 hours and 7.2 hours, medium-sized enterprises were 5.3 hours and 9.2 hours, and large enterprises were 9.7 hours and 11.7 hours, respectively.
- The cost of education and training per capita in Korea is 56 euros per employee per year on a direct cost basis, less than the EU average of 245 euros. Korea was at 23% of the EU average, with a gap far more significant than the gap on hours of education and training per employee (65%). SMEs in Korea and the EU averaged 14 euros and 147 euros, medium-sized enterprises were 39 euros and 200 euros, and large enterprises were 105 euros and 312 euros, respectively.
The smaller the size of the company, the larger the gap between the Korean and EU averages, especially small enterprises, recorded the lowest among the countries compared.
◦ Analysis of Determinants of Corporate Education and Training Using PIAAC
- We compared the general trust or trust propensity level of workers and management measured in PIAAC. In Korea, both indicators were lower than their OECD average, but management trust was particularly low. In most countries, the trust level of management was higher than that of wage workers, but in Korea, the trust level of management was lower than that of the wage workers.
- In the empirical analysis using the PIAAC data, the general trust or trust propensity of wage workers and management increased the likelihood of wage workers participating in education and training supported by employers. In particular, when the company fully supported the cost and time of education and training, the general trust of management was more critical than the general trust of workers, and the estimated coefficient value was also substantial compared to other explanatory variables.
- The competency variable, another factor related to the trust of workers judged by management, was found to be statistically significant. Also, the organizational culture of the horizontal distribution of powers between labor and management, the trust propensity of workers, and the
trust propensity of managers showed a positive correlation.
◦ Analysis Using Corporate Vocational Training Survey and Perception Survey
- As a result of empirical analysis using the data on the 2017 Corporate Vocational Training Survey, it appears that the higher the trust between labor and management, management is more likely to employ a high-wage strategy, maintain a long-term relationship with workers, and lower the concern about the possibility of turnover, thereby also investing in general skills.
- Management does not necessarily only consider economic rationality, such as concerns about turnover and high wages when investing in general skills, but provides education and training which help workers accumulate general skills – based on trust between labor and management while relieving turnover concerns.
- Through a focus group interview, a perception survey on corporate education and training was conducted from the perspective of both workers and management. Through the perception survey, we were able to supplement the causes of low education and training investments of Korean companies as identified in the empirical analysis to enrich the interpretation.
◦ Analysis of Determinants of Corporate Education and Training Using Workplace Panel Survey (WPS)
- Using the data from the Korea Labor Institute's WPS, we analyzed the result of how trust at the collective labor-management relations level, rather than individual employment relations, affects the education and training investment of companies. It was confirmed that the trust of the employer, in addition to the characteristics of the job, how the company utilizes human resources, the existence of labor unions, and human resource management, plays a vital role in the company's investment in education and training.
Ⅲ. Policy Recommendations
◦ If Korean workers are less motivated by reciprocity, and firms also have less trust, it is unlikely that corporate education and training investments, which amplifies the incompleteness of contracts between labor and management will occur.
- Even if education and training are essential in the production process, it is impossible to invest in education and training if the management believes that workers who receive training do not study hard, do not work hard, and will leave soon.
- In this case, the company has no choice but to choose a management strategy that excludes skills rather than a strategy that utilizes skills.
- Because it is impossible to prepare a perfect contract, it is challenging to overcome market failure that arises with just an incentive-based system.
◦ The Problem of Incomplete System Should be Filled with the Relationship of Trust and Reciprocity.
- Policy alternatives to enhance Korean companies' education and training investment should also start with a fundamental shift in perception that builds a fair economy and increases the level of trust in society as a whole, beyond traditional solutions that tackle mismatch reduction in skill supply and demand.
- We must start with workplace innovation that builds cooperative labor-management relations on the premise of equal power distribution of labor and capital, improves the skill demand of workplaces through the participation of workers, and creates an organization of autonomy and discretion.
∙ Relevant Ministries: Ministry of Employment and Labor, Ministry of Trade, Industry and Energy
