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United States Small Business Administration

RS Number 135

June 1993

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Purpose

Sustained economic growth requires continual enhancement of workers'
skills as well as increases in new machinery and equipment. The
entry of new, untrained workers into the labor force, the requirements
of new technologies, and the imperatives created by foregin competition
mean that on-the-job training is necessary to improve the quality
of the nation's work force and increase its productive capacity.

Small businesses have historically been a vital source of training
for American workers, providing the majority of workers with their
first jobs and giving workers the general training they require
to function efficiently throughout their work lives. However,
prior to this study, recent data on firm size differences in training
did not exist. This nationwide survey provides the first detailed
data on training activities in small and large firms gathered
in more than a decade.

Scope and Methodology

In August 1992, 1,288 responses to a telephone survey were collected
by the Survey Research Center at the University of Kentucky. The
sample of businesses used to conduct the survey was drawn from
the Comprehensive Business Database of Survey Sampling, Inc.,
of Fairfield, Conn.

The focus of the survey was the training experience of workers
hired in the previous three months. Four firm size categories
were used: 1-24 employees, 25-99 employees, 100-499 employees
and 500 or more employees. Training activities were divided into
five categories: (1) on-site formal training, (2) off-site formal
training, (3) informal management training, (4) informal co-worker
training and (5) watching others perform. "Learning by doing"
was not examined because of methodological problems.

Current and future employer needs for different types of worker
skills were surveyed, as well as the length of time needed for
new workers to become fully trained and qualified. The study also
investigated whether firms provided remedial training or used
government training programs.

Highlights

Small firms appear to provide general workplace training. Large
firms specialize in providing firm-specific training.

Small firms provide fewer total hours of training to new hires
in the first three months of employment than do large firms. Small
firms, however, provide more training to new employees with less
than 12 years of schooling, and a comparable amount of training
to new hires with no previous work experience. Compared with firms
with 500 or more employees, firms with fewer than 25 employees
provide more than twice as many hours of informal management training
to employees with less than a high school diploma.

These results are consistent with earlier findings that small
businesses hire less educated and inexperienced more workers and
provide them with general skills and training. The amount of training
provided to less educated and more inexperienced workers does
not increase with firm size because larger firms appear to prefer
hiring and providing firm-specific training to more experienced
and educated workers.

Although small firms provide less training, on average, to new
hires, the payoffs that workers receive are greater in small firms.
Wages grow faster in the first two years of employment in small
firms than in large firms. Wages per hour of training in the first
two years of employment grow 2.5 times faster in firms with fewer
than 100 employees than in firms with 100 or more employees.

Formal training is more costly than informal training across all
firm size categories. About 90 percent of all new hires receive
informal training from managers and supervisors, regardless of
the size of firm. Formal training, however, varies with firm size:
less than 19 percent of firms with fewer than 25 employees have
formal training programs, compared with 44 percent of firms with
500 or more employees.

Bigger firms provide more training for men and women; whites,
blacks, and other minority groups; union and nonunion workers;
part-time and full-time workers; and all occupational categories.
Total hours of training increase with firm size for all industries;
single and multi-establishment firms; and all forms of legal organization,
regardless of the age of the business, number of new hires, and
the intensity of upward mobility within the firm.

The importance of basic skills, such as showing up on time, the
ability to work with others, reading, oral communication, following
directions, and general problem-solving abilities, are applicable
across all firm sizes. Math and writing skills are applicable
to approximately 90 percent of all businesses.

The largest differences by firm size in the applicability of skills
was for basic computer skills. More businesses reported that basic
computer skills are likely to grow in the next five years than
any of the other skills listed in the survey. However, while only
53 percent of firms with fewer than 25 employees report that computer
skills were applicable to their business, 74 percent of firms
with 500 or more employees report that basic computer skills were
applicable. Small firms also see a lower level of need for computer
skills in the near future than do large firms.

Small firms are less likely to provide remedial training or to
hire workers through government-financed training programs than
are large firms. Only 16 percent of firms with fewer than 25 employees
have hired workers through such programs; 44 percent of firms
with 500 or more workers have used these programs.

Given the returns to training in small firms and the vital role
played by small firms in providing general training to less educated
and inexperienced workers, it may be beneficial to design programs
to promote training opportunities in small firms.

Ordering Information

The complete report is available from:

National Technical Information Service

U.S. Department of Commerce

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847

Ordering Number: PB93-192870

Price Codes: Pending (Paper); A02 (Microfiche)
*Last Modified 6-11-01