In Simple Words
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.
Women garment workers in Bengaluru
- No training on control lines
- Comparison group
- P.A.C.E. soft skills training
- 20% higher productivity
During the eight months after training. Efficiency is output relative to the task target; the gain was 10.8 percentage points.
See source →Research question
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.
Participants
N = 2,703 female garment workers across 112 production lines in 5 factories in Bengaluru, India.
Study Design
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.
Results
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.
Takeaway
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.
Source and citation
See source →Read alongside the research
Plain-English glossary
Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.
- Percentage points
The difference between two percentages.
ExampleA rise from 40% to 50% is 10 percentage points. Relative to the starting value, that is a 25% increase.
Office for National Statistics · Percentages ↗Read more about percentage points →- Randomized controlled trial
A study that uses chance, like drawing lots, to decide who receives each option being compared. Researchers compare the groups’ outcomes to estimate the effect of those options.
ExampleA lottery assigns volunteers to a training programme or a comparison group. Researchers then compare their outcomes.
GET-IT glossary · Randomized study ↗Read more about randomized controlled trial →