Does local human capital boost training investments by firms? An analysis across Italian local labour markets

Following suggestions from theoretical and empirical literature on agglomeration and on social returns to education which emphasise the contribution of local knowledge spillovers to productivity and wage growth, this chapter aims at uncovering the relationship between local human capital and employer-provided training. Furthermore, we check the effects of other variables which measure some distinctive features of local labour markets, like the degree of specialization, average firms’ size, intensity of job turnover, economic density, employment in R&D activities and some other control variables on the employers’ decision to invest in the training of their workers. Our key-results are consistent with the prediction that employer-provided training should be more frequent in areas where the aggregate educational level is higher. These results have proved to be robust since they are not altered when different definitions of local human capital are adopted or different sub-samples are considered (with the exception of female workers). Moreover, we take into account the possibility of crowding-out of employer-provided training due to the presence of public financed training. We also cope with the problem of omitted variables and spatial sorting, that could bias econometric results, by means of a two-step strategy based on instrumental variables and we conclude that the marginal effect of average years of schooling at local level on employer-provided training is somewhere between 2.2% and 6.7%. Some policy implications can be derived from these results. First, the positive effects of human capital externalities imply that public resources should be devoted to sustain education and to avoid drop-outs. At local level, public policies should attempt to retain and attract highly educated workers. In turn, training policies should prevent and remedy any possible causes of underinvestment and contribute to create the conditions needed to favour firms’ investment in training. At the same time, public policies should avoid the crowding-out of employer-provided training. To this end it is required that the contents and the recipient groups of public and private training activities do not overlap.