The economics of work-based training comprises two overlapping theories: human capital and institutionalism. Human capital theory, assuming rational individualism and competitive markets, analyses the incentives to employers and trainees to develop skills. Its view of the training outputs of an unregulated market system is broadly optimistic. Its extension to include recruitment costs, informational attributes and wage rigidities results in a more institutionally-orientated and less optimistic account. Further institutional influences evident in national training patterns include industrial relations, labour market structure, collective organization, system-wide interdependences and historical path dependence.

Economic interest in training is generated by several attributes. Vocational learning, of which it is part, contributes strongly to the economic performance of companies, regions and countries. Increased knowledge and skill are associated with higher pay; unequal skill is an important cause of economic inequality. Public unemployment policies today emphasize training rather than job creation and income maintenance. Training is central to theories of internal labour markets, efficiency, wages and labour market segmentation. Finally, market failure is endemic to training, creating a potential case for public intervention.

Paul Ryan