Return On Human Capital: The Value of Training

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In most cases, without training, employees’ skills and knowledge become less valuable as time passes and technology evolves. To keep up with the latest scientific discoveries and technological advances, employees must undergo training programs especially developed for the niches in which they work. An important aspect that many employers tend to overlook is that training programs have a significant, positive effect not only on employees’ personal growth, but also on companies’ return on human capital.


corporate training

Is There Any Return on Human Capital Investment?

Training gives employees the opportunity to develop new skills and accumulate the knowledge they need in order to achieve specific organizational and personal goals. It also enables businesses to reduce the potential hazards and risks associated with certain jobs. Lower business risks not only improve workplace wellness, they also reduce the cost of insurance, which positively impacts a company’s bottom line.


Additionally, training is a great way for companies to become more productive, profitable and competitive. Although most employers who train their workers gain substantial return on human capital, measuring this return can be quite difficult given that particular variables must be considered. For instance, since training typically results in employees receiving higher wages, which will be paid out of your productivity gains, having highly trained employees may lower your profit margin. But, if you consider that some training programs (e.g. courses that provide company-specific skills and knowledge, which have no value when employees leave that particular company) offer benefits that aren’t passed on to employees in terms of wages, opting for such programs is a great idea to boost your productivity, profitability and competitiveness.


Training’s Impact on Productivity

According to a study conducted by the National Bureau of Economic Research, productivity levels directly relate to the skills and knowledge of your workforce. This means that the more knowledgeable and skilled employees are, the higher their productivity levels. The same study also found that on-the-job training can increase an employee’s productivity by 9.5 to 16 percent. Additional variables that impact workforce productivity include machinery, the way machinery operates and introduction of new technology.


Training Impact on Profitability    

A recent research paper about return on human capital indicates that investment in training is profitable for all organizations. Since only a small number of employees see an increase in individual remuneration, most productivity gains resulting from employee training return to employers. Particularly, several studies document that profit typically exceeds twice the size of wage increase.


Exceptional results relate to the on-the-job training sponsored by a third party, such as another employer. Such training generates substantial benefits mainly because they aren’t appropriated by either the trainer or the trainee.


Training Impact on Competitiveness

The skills and knowledge of your employees affects not only the quantity and quality of products, but also the entire manufacturing process. Since speed and flexibility in switching trained employees from a specific type of product or machine to another is critical to meet changing production needs, these two factors have visible consequences for the manufacturing process, directly affecting your competitiveness.


Considering that training enables employees to adapt more efficiently and rapidly to their tasks and new technologies, while stimulating their interest in innovation, the return on human capital in term of benefits is almost endless for any organization that takes the time to train its staff.


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