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Small Business

Research Summary

United States Small Business Administration

RS Number 135

June 1993


Job Training Approaches and Costs

in Small and Large Firms

by Dan A. Black, Mark C. Berger, and John Barron

University of Kentucky, Lexington, Kentucky

Completed under contract no. SBA-6640-OA-91

Purpose

Sustained economic growth requires continual enhancement of workers' skills as well as increases in new machinery and equipment. The entry of new, untrained workers into the labor force, the requirements of new technologies, and the imperatives created by foregin competition mean that on-the-job training is necessary to improve the quality of the nation's work force and increase its productive capacity.

Small businesses have historically been a vital source of training for American workers, providing the majority of workers with their first jobs and giving workers the general training they require to function efficiently throughout their work lives. However, prior to this study, recent data on firm size differences in training did not exist. This nationwide survey provides the first detailed data on training activities in small and large firms gathered in more than a decade.

Scope and Methodology

In August 1992, 1,288 responses to a telephone survey were collected by the Survey Research Center at the University of Kentucky. The sample of businesses used to conduct the survey was drawn from the Comprehensive Business Database of Survey Sampling, Inc., of Fairfield, Conn.

The focus of the survey was the training experience of workers hired in the previous three months. Four firm size categories were used: 1-24 employees, 25-99 employees, 100-499 employees and 500 or more employees. Training activities were divided into five categories: (1) on-site formal training, (2) off-site formal training, (3) informal management training, (4) informal co-worker training and (5) watching others perform. "Learning by doing" was not examined because of methodological problems.

Current and future employer needs for different types of worker skills were surveyed, as well as the length of time needed for new workers to become fully trained and qualified. The study also investigated whether firms provided remedial training or used government training programs.

Highlights

Small firms appear to provide general workplace training. Large firms specialize in providing firm-specific training.

Small firms provide fewer total hours of training to new hires in the first three months of employment than do large firms. Small firms, however, provide more training to new employees with less than 12 years of schooling, and a comparable amount of training to new hires with no previous work experience. Compared with firms with 500 or more employees, firms with fewer than 25 employees provide more than twice as many hours of informal management training to employees with less than a high school diploma.

These results are consistent with earlier findings that small businesses hire less educated and inexperienced more workers and provide them with general skills and training. The amount of training provided to less educated and more inexperienced workers does not increase with firm size because larger firms appear to prefer hiring and providing firm-specific training to more experienced and educated workers.

Although small firms provide less training, on average, to new hires, the payoffs that workers receive are greater in small firms. Wages grow faster in the first two years of employment in small firms than in large firms. Wages per hour of training in the first two years of employment grow 2.5 times faster in firms with fewer than 100 employees than in firms with 100 or more employees.

Formal training is more costly than informal training across all firm size categories. About 90 percent of all new hires receive informal training from managers and supervisors, regardless of the size of firm. Formal training, however, varies with firm size: less than 19 percent of firms with fewer than 25 employees have formal training programs, compared with 44 percent of firms with 500 or more employees.

Bigger firms provide more training for men and women; whites, blacks, and other minority groups; union and nonunion workers; part-time and full-time workers; and all occupational categories. Total hours of training increase with firm size for all industries; single and multi-establishment firms; and all forms of legal organization, regardless of the age of the business, number of new hires, and the intensity of upward mobility within the firm.

The importance of basic skills, such as showing up on time, the ability to work with others, reading, oral communication, following directions, and general problem-solving abilities, are applicable across all firm sizes. Math and writing skills are applicable to approximately 90 percent of all businesses.

The largest differences by firm size in the applicability of skills was for basic computer skills. More businesses reported that basic computer skills are likely to grow in the next five years than any of the other skills listed in the survey. However, while only 53 percent of firms with fewer than 25 employees report that computer skills were applicable to their business, 74 percent of firms with 500 or more employees report that basic computer skills were applicable. Small firms also see a lower level of need for computer skills in the near future than do large firms.

Small firms are less likely to provide remedial training or to hire workers through government-financed training programs than are large firms. Only 16 percent of firms with fewer than 25 employees have hired workers through such programs; 44 percent of firms with 500 or more workers have used these programs.

Given the returns to training in small firms and the vital role played by small firms in providing general training to less educated and inexperienced workers, it may be beneficial to design programs to promote training opportunities in small firms.

Ordering Information

The complete report is available from:

National Technical Information Service

U.S. Department of Commerce

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847

Ordering Number: PB93-192870

Price Codes: Pending (Paper); A02 (Microfiche)

*Last Modified 6-11-01