External Market Unobservability of General Soft Skills
Standard human capital models predict that general soft skills training will induce employee poaching and wage bidding by outside firms, deterring employers from funding general workplace training.
Picture this
Imagine a restaurant line cook who develops exceptional kitchen communication and crisis-solving abilities behind closed doors. Because outside restaurant owners can only inspect the cook's basic job title on a paper resume and cannot observe these interpersonal abilities during hiring, rival restaurants do not offer higher wages, allowing the current restaurant to retain the skilled cook without raising pay.
What the evidence says
Despite a 20 percent productivity increase (10.8 percentage point efficiency gain, p < 0.05), post-program long-run worker turnover showed zero differential retention or attrition (0.620 percentage points, p > 0.10) and wage increases remained negligible (0.492 percent, p < 0.10), proving that soft skills are unpriced by external labor markets due to unobservability.
- Who
- N = 2,703 female garment workers followed across 1,433,981 daily attendance records and 28,692 monthly salary records in Bengaluru, India.
- How
- Two-stage randomized controlled trial (RCT) tracking post-program worker retention and administrative monthly payroll salaries across treatment and control factories.
What to do
Capitalize on the external unobservability of general soft skills to invest in employer-sponsored non-cognitive training without incurring increased turnover or wage inflation.
From the source
"Soft skills are largely unobserved in the hiring and wage-setting process in this setting and therefore are not priced into the wage... This imperfect information... among both current and future potential employers likely generates the observed difference in impacts of soft skills training on marginal productivity as compared to wage."
Returns_to_On_the_job_Soft_Skills_Training_Adhvarya_Kala_Nyshadham.pdf