Firm Net Return on On-the-Job Soft Skills Training
Firms are hesitant to invest in general soft skills training because competitive labor market theory predicts trained workers will capture their increased marginal productivity through higher wages or poached job offers.
Picture this
Imagine a factory installing a specialized upgrade on a hired machine that makes it run faster. If rival factories cannot easily see or measure this upgrade from the outside, the original factory can keep operating the faster machine without paying higher rental rates. In low-wage labor markets, soft skills like teamwork and clear communication are invisible to outside employers during recruitment, allowing the firm to reap efficiency gains while keeping base wages tied to standard market rates.
What the evidence says
Treated workers became 20 percent more productive (10.8 percentage point efficiency gain, p < 0.05) after program completion, while wages increased by only 0.5 percent ($0.50 USD/month). Program costs were $95,000 for 1,087 treated workers, producing a net return to the firm of 73 percent at program completion and 258 percent 8 months post-completion.
- Who
- N = 2,703 female garment workers across 112 production lines in 5 factories in Bengaluru, India.
- How
- Two-stage randomized controlled trial (RCT) assigning production lines and individual workers to soft skills training (P.A.C.E.) with administrative tablet production tracking and dynamic inverse probability weighting for attrition.
What to do
Calculate total cost per worker for soft skills modules and compare accumulated post-training efficiency gains against fixed wage structures to identify net firm returns under asymmetric information frictions.
From the source
"The net return to the firm was 258 percent eight months after program completion."
Returns_to_On_the_job_Soft_Skills_Training_Adhvarya_Kala_Nyshadham.pdf