substitute one benefit for another.
For example, workers closer to
retirement may place a greater value
on pension benefits than their
younger colleagues, while workers
with young families might be more
interested in maternity and orth-
odontic benefits than those without
dependent children.

Employers provide benefit
packages that generally are most
beneficial to the “average” employee.
Employees who differ from the
average may receive benefits they
don’t care to have and lack benefits
they wish to receive. As a result,
benefits may be offered by the
employer but have little or no value
to an employee because, for example,
they duplicate benefits provided to a
working spouse. While some
employers offer flexible benefit (or
cafeteria) plans, which allow
employees to choose among benefit
options, workers typically cannot
tailor the benefit package to meet
their individual needs. According to
the Employee Benefits Survey, only
6 percent of all employees are
offered flexible benefit plans."

In other circumstances, workers
with the same benefits can derive
different value from them. For
example, Ann C. Foster points out
that in defined benefit pension plans,
“Benefits generally are based on
salary and years of service with the
employer sponsoring the plan. If a
‘vested’ employee leaves a job before
retirement, the final salary at the
time of leaving is used to determine
retirement benefits. For the em-
ployee who stays at the same job
until retirement, benefit calculations
are based on pre-retirement salary
levels, most often the highest
salary."" In addition, these high
earnings are multiplied over more
years of employment. For example,
when the pension calculation calls
for a pension of 1 percent of the
annual salary earned in the last year
on the job for each year of service,
individual A (who stayed with the
firm for 30 years) receives a higher
pension than individual B ( who had

changed jobs after 15 years).
Individual
A B
Starting salary $10,000 $10,000
Salary after
15 years 20,000 20,000
Changed
jobs
Salary after
30 years 40,000 40,000
Annual pension
benefit:
First employer 12,000 3,000
(1 percentof (1 percent of
$40,000 $20,000
for 30 for 15
years) years)
Second employer - 6,000
(1 percent of
$40,000
for 15 years)
Total annual pension
benefit $12,000 $9,000

Measurement issues. Melissa
Famulari and Marilyn Manser posed
the following three conceptual
questions in illustrating why the
exchange rate does not have the
same value for employers as it does
for employees:"

© What would an employee have
to spend to acquire the mix of
benefits wanted, if all benefits
were to be purchased outside
the workplace?

* What would an employee have
to spend to acquire the exact
mix of benefits currently
received at work, regardless of
the desire for that mix of
benefits?

© What is the least amount of
money an employee would be
willing to accept to forgo the
benefits now received?

Famulari and Manser also point
out specific measurement problems.
Difficulties arise because individual
preferences are not easily identified
and estimates of value are based
upon hypothetical as opposed to
actual choices. Individuals must
choose among a limited number of

7 Compensation and Working Conditions June 1996

wage and benefit packages and are
not always able to obtain the desired
amount of a given benefit. Further-
more, the current compensation
package may not resemble past or
future ones.

Further complicating any attempt
to measure employee value for their
labor services is the need to reflect
not only what is received in the form
of compensation (the exchange rate)
but the costs incurred in order to
work. For example, the opportunity
cost of lost leisure time, and specific
expenditures associated with
working (i.e. day care, transporta-
tion, clothing) counterbalance wage
and benefits receipts.

Despite the difficulties in acquir-
ing realistic measures of employee
benefit values, Famulari and Manser
concluded that the exchange rate
from the employer’s perspective
(what they term as “employer cost”)
is a limited but useful estimate of the
employee value of total compensa-
tion. They suggest that for some
purposes, however, using employer
cost as a proxy of the “median
worker’s value of non-legally
required benefits seems to be a
reasonable approximation to
employee value,”

In sum, various concepts of labor
costs have been developed. Full labor
costs include all expenditures
associated with hiring and maintain-
ing a labor force, but present
problems in differentiating between
capital and labor expenditures. The
exchange rate includes both pecuni-
ary and nonpecuniary forms of
compensation and has different
values from the employer and
employee perspectives. Measure-
ments of nonpecuniary items are not
feasible; similarly, difficulties are
encountered in setting a value on the
exchange rate from the employee’s
perspective. Thus, employer
expenditure measures are the best
available information to approximate
employee value.

In conclusion, a “working
definition of compensation” is
restricted to pecuniary items reflect-



training is job related.

In broad terms, the concept of full
labor cost entails capturing all costs
related to maintaining staff, includ-
ing some expenditures typically
classified as capital costs. Therein
lies the difficulty of measuring labor
costs using this method, if it is to
serve as a basis for programs aimed
at measuring compensation. The
additional cost of heating or air
conditioning a facility so that
employees can work in comfortable
conditions, and the cost of providing
wheelchair access for handicapped
workers are examples of this
measurement problem. Although
these elements of the production
function have some value to the
worker, they can also be viewed as
capital expenditures.

The inclusion of such capital
costs in a labor cost measure clouds
the very concept of the price of labor
services. Furthermore, the interpre-
tation of the behavior of a labor cost
measure defined so broadly would be
impossible to evaluate, because its
movements would be influenced by
the capital and intermediate inputs
necessary for hiring and supporting
the work force. Employing such a
measure would also pose a practical
difficulty: making data collection, at
best, problematic.

Exchange rate

Employees sell their services to
employers in exchange for compen-
sation. The concept of the compen-
sation exchange rate differs from
that of the full labor cost because it
includes only those items that
employees receive. Compensation
includes direct payments to the
workers or to a third party for the
benefit of a worker, making compen-
sation the transaction price between
employers and employees in the
labor market. The compensation
exchange rate reflects the expendi-
tures employers incur that are
associated with something the
employee receives, but it excludes
costs for doing business that are
included in the full labor cost

concept.

Compensation, is a joint agree-
ment between employer and em-
ployee as to the value of the labor
services. The employee receives
wage and benefit compensation in
return for labor services to the
employer; on the other hand, the
employer receives labor in exchange
for payments to the employee.

In retum for their labor, workers
receive rewards that include not only
traditional pecuniary items in the
form of wages and benefits but also
nonpecuniary items. These
nonpecuniary items may add or
detract from the work relationship.
Positive nonpecuniary working
conditions include: Safe and healthy
working environments, job amenities
such as attractive office surround-
ings, freedom from arbitrary
supervisory practices, and training
and advancement opportunities.
Obviously, the absence of these
factors can be considered negative
job characteristics. The employer
may be able to offer lower rates of
compensation if job conditions are
perceived as above average, or the
employer may need to pay higher
rates to offset substandard or
hazardous conditions.

Efforts to set a value on
nonpecuniary job characteristics
have been explored in the hedonic
labor market literature? From a
practical point of view, however, it is
difficult to place a value on these
nonpecuniary factors. Thus,
measures of compensation that are
more narrowly focused on wages and
payments for benefits are more
statistically useful. The compensa-
tion exchange rate is at the same
time a cost to the employer and
income to the employee. However,
as described below, the expenditures
incurred by employers can differ
from the value the employee places
on what is received.

Exchange rate from the

employer’s perspective
Compensation costs from the

employer’s perspective consist of

expenditures in the form of cash
wages and benefits. Although
limited to payments to employees in
money or for the purchase of
benefits, and excluding
nonpecuniary items, the compensa-
tion exchange rate still reflects a
diverse set of items. It includes
compensation in the form of wages
and salaries, premium pay for
overtime and shift differentials, paid
leave (holidays, vacations, sick
leave, and other hours paid for but
not worked), insurance costs (health,
life, sickness, and disability), and
legally mandated costs. Deferred
income, in the form of employer's
contributions to pension and other
retirement plans, is also part of the
compensation package.
Compensation, defined in this
manner, captures the exchange rate
for labor services from the
employer’s perspective. It reflects
the employer's expenditures for
providing compensation for workers
in terms of immediate payments as
well as the costs for future obliga-
tions. It does not, however, measure
the compensation package from the
employee’s point of view.

Exchange rate and its value to
employees

From the employee’s perspective,
the exchange rate of total compensa-
tion consists of wages paid and the
value of payments for benefits. Even
when restricted to pecuniary items, it
is difficult to measure the employee
value of the compensation package
because each employee attaches a
different value to each benefit
component. The reasons for this are
that employer expenditures on
benefits do not equal the market
Price to the employee of these
benefits (they are in fact often lower
because of group purchasing) and
that individual employees have
different preferences.

The labor force is heterogeneous,
comprised of individual employees
with distinct preferences. These
individual workers value the same
benefits differently and may prefer to

Compensation and Working Conditions June 1996 6



ing the transaction price between
employers and employees for labor
services. Components of this
definition include items that:

* Are part of the “exchange
rate” between employers and
employees;

* Have pecuniary value; and

° Are measurable.

BLS compensation measures
BLS publishes two broad-based
series that track developments in
compensation—the Employment
Cost Index (ECI) and the Employee
Benefits Survey (EBS).* The ECI,
which was introduced in 1976,
provides a measure of employer
outlays for labor, or the “exchange
Tate,” from the perspective of the
employer. As noted earlier, the
exchange rate from the employee’s
point of view is difficult to evaluate.
Nevertheless, the EBS studies
provide insights on the incidence
and detailed characteristics of the
benefits received by employees.

Employment Cost Index. The ECI is
a measure of change in the transac-
tion price of labor defined as
compensation (employer costs) per
hour worked. The index includes
costs incurred by employers for
employee benefits in addition to
wages and salaries. It is designed to
Measure the obligations employers
incur when using labor.

The ECI does not include items
that are part of the cost of doing
business, (such as payroll processing
or parking facilities) nor
nonpecuniary items. Capital costs
that are components of full labor
costs are excluded. Nonpecuniary
items are not readily measurable.

The ECT does, however, capture the
costs incurred by employers for
wages or to purchase benefits.

The ECT reflects changes in the
transaction price in the labor market,
using standardized occupational
units of observation. The index
holds the distribution of employment
among industries and occupations
constant in order to measure change
unaffected by changes in employ-
ment. It shows the change in a fixed
set of labor costs, that is not affected
over time by changes in the compo-
sition of the labor force.

Employee Benefits Survey. While
conceptual difficulties preclude the
calculation of a measure of employee
value of compensation, the EBS
provides data on the incidence and
characteristics of the benefits
received. The EBS provides a
picture of compensation practices,
with details on specific benefits,
Examples of the detailed characteris-
tics include: Participation require-
ments; employee contributions,
when required; health care
deductibles; pension benefit formu-
las; and paid leave provisions.

Both EBS and ECI data are
available by size of establishment, as
well as various employer and
employee characteristics. For
instance, separate data are published
by major industry groups, full-time
and part-time employment, and
union/nonunion status.

Recent developments in
compensation statistics

The ECI and EBS surveys were
initially developed as independent
Programs. From the onset, they
were intended to address different
questions and needs, Until recently,
little effort had been made to link the

Programs so that data users could
track changes in costs to trends in
specific benefit plans.

Recently, however, efforts have
been undertaken to merge these
surveys. As a first step, a set of
common terms and definitions have
been compiled. In the past, both the
EBS and ECI collected data on a
broad category of retirement ben-
efits, but used different titles and
definitions. The EBS provided
detailed data on a variety of items
classified as retirement plans, while
the ECI collected cost data on either
pension or savings and thrift plans.
Under the revised common defini-
tions used by both EBS and ECI,
there are two broad retirement
benefit categories: One is limited to
defined benefit pensions, and the
other includes a variety of defined
contribution plans (such as deferred
profit-sharing plans, employee stock
ownership plans, money purchase
pension plans, savings and thrift
plans, simplified employee pensions,
and stock bonus plans).

In a continuing effort to improve
compensation surveys, BLS has
undertaken a major initiative,
COMP2000, to link the surveys
Providing wage and benefit data.
This is not limited to the use of
common definitions and terms but
involves all the steps in production
of the surveys, including data
collection, compilation, and dissemi-
nation. The mission of COMP2000
is to design, organize, and imple-
ment a single compensation program
that encompasses the existing data
series on levels and trends in
compensation while minimizing
respondent burden. The goal is to
create of a link between ECI and
EBS measures, so that employer
expenditure data will be a better
proxy of employee value.

Compensation and Working Conditions June 1996 8



Towards a
Working

Definition of

Compens AtiON sy saeeerwensren

AND ELIZABETH DIETZ

orkers receive more than wages in exchange for their services. Labor costs

consist of compensation—wages and benefits received by employees from

employers in exchange for their services—as well as other costs associated
with maintaining and supporting a staff. As capital and Jabor costs have become increas-
ingly intertwined, distinguishing between them has become problematic. This has ren-
dered the job of estimating the full cost of labor ever more difficult. At the same time, the
advent of new benefits has made measuring compensation costs more complicated.

Prior to the twentieth century,
virtually all compensation was paid
in wages, so wages were a fair
measure of compensation. Workers
had no employer-provided benefits,
or non-wage compensation, such as
health insurance, sick leave, or
retirement pensions. At the same
time, there was a clearer distinction
between capital costs and labor costs.
Since workers required little formal
training from their employers, the
concept of labor cost was not
encumbered by investments in
training. Because of this, wages
traditionally were used to measure

Harriet Weinstein and Elizabeth Dictz are
economists in the Division of Compensation Data
Analysis and Planning, Bureau of Labor Statis-
tics, Telephone (202) 606-6237/87.

‘The authors would like to thank William R.
Bailey for his paper, “Toward A Working Defini-
tion of Compensation,” (unpublished) which
served as the genesis of this article.

total compensation and as a proxy
for labor costs. The complexity of
today’s employer-employee exchange
requires a detailed look at how we
Measure compensation and how we
define labor costs.

Measures of total labor cost and
compensation serve diverse pur-
poses. They are used in the analysis
of inflation and are examined for
interindustry and interarea compari-
sons. Firms use these measures to
determine factors in a variety of
business decisions, such as how
many employees to hire and where to
locate the business establishment,
and what level of compensation
should be provided to employees.

This article identifies some of the
major changes in labor costs,
developments in compensation
practices, and alternative concepts of
labor cost and compensation. At the

3. Compensation and Working Conditions June 1996

same time, the article attempts to
Telate these concepts to a working
definition to be used by the Bureau
of Labor Statistics (BLS) in its data
series on compensation measures.
This working definition reflects two
contrasting perspectives of compen-
sation, a dichotomy that arises
because the value an employee
places on compensation received
need not equal the employer’s
expenditures. However, given the
measurement problems inherent in
determining the employee’s value of
compensation that are described
here, the employer expenditures
series serves as the best available
proxy.

Major developments in labor
costs and compensation
practices

The definition of labor costs has



‘See for example, Alvin Bauman, “Measur-
ing Employce in U.S, Industry,”
‘Monthly Labor Review, October 1970, pp. 17-24.

2 Woodbury, Stephen A., “Substitution Be-
‘tween Wage and Nonwage Benefits,” The Ameri-
can Economic Review, Vol. 73, March 1983, p.
167.

2 Alvin Bauman, “Measuring Employee Com-
pensation..." p. 19.

“Cowan, Cathy A. and Patricia A. McDonnell,
“Business, Households, and Governments: Health
Spending, 1991,"Health Care Financing Review,
vol. 54, no. 3, 1993, p. 228.

5 Percent of full-time employees eligible for
reimbursement accounts have increased from 5
percent in 1986 to 52 percent in 1993 in medium-
and large-sized private establishments. See Em-
ployee Benefits in. Medium and Large Private
Establishments, 1986, Bureau of Labor Statistics
Bulletin 2281, June 1987, p.91; and Employee
Benefits in Medium and Large Private Establish-
ments, 1993, Bureau of Labor Statistics Bulletin
2456, November 1994, p.10.

—ENDNOTES—

* Woodbury, Stephen A., “Substitution Be-
tween Wage...” p. 166.

7 In this case, wage means a payment by the
‘employer to the employee in return for labor ser-
vices. In effect, “wages are the price of labour.”
See, I.R. Hicks The Theory of Wages, seconded.,
London: MacMillan and Co. Lid., 1963, p. 1.

“Oi, Walter Y., “Labor As a Quasi-Fixed Fac-
tor,” The Journal of Political Economy, Decem-
ber 1962, pp. 538-555.

° See for ‘Sherwin Rosen, “Hedonic
Prices and Implicit Markets: Product Differentia-
tion in Pure Competition,” Journal of Political
Feonomy. v. 82, 1974, pp. 34-55.

Benefits in the United States,
1992- By Bureau of Labor Statistics, Washington,
DC, March 1995, table: “Percent of employees
eligible for selected benefits, by private and pub-
ic sectors and full-time and part-time status,
United States, 1992-93.”

"Foster, Ann C., “Portability of Pension Ben-
efits Among Jobs,” Monthly Labor Review, July
1994, p. 45.

9 Compensation and Working Conditions June 1996

"2 Famnulari, Melissa and Marilyn E. Manser,

December 1989, pp. 24-32.

Ubi,

“ BLS publishes other more limited series re-
lating to compensation, The Occupational Com-
pensation Surveys Program and Employment and
Earnings are limited to wages, while the series on
compensation changes negotiated through collec-
tive bargaining uses a definition of compensation
based on employer expenditures.

3 The compensation levels series, however, is
‘benchmarked to current industry employment.

6 For descriptions of ongoing efforts by the
Bureau of Labor Statistics to ensure that these
measures reflect changes in compensation prac-
tices, see for example, Douty, H.M., “A Century

of Wage Statistics: The BLS Contribution,”
Monthly Labor Review, November 1984, pp. 16-
28; and Janet L. Norwood, “Measuring the Cost
and Incidence of Employee Benefits,” Monthly
Labor Review, August 1988, pp. 3-8.



become more complex as our
economy has evolved. In an
agrarian economy, most people
worked on small farms and per-
formed jobs that required little
formal training, and compensation
was often payment in kind (in the
form of food and shelter). The trend
toward monetary payments for labor
corresponded with the genesis of the
industrial era, when workers were
paid a wage for their efforts, and
employers incurred few other costs
in hiring labor. With the develop-
ment of an industrial economy,
workers were required to perform
duties that required the use of
complex tools and skills, necessitat-
ing formal training that was fre-
quently firm specific.

As the nature of work evolved, so
did compensation practices.’ Until
the 1930s in the United States, most
workers received compensation only
for straight time worked or units
produced, and were responsible for
their own long-term economic
security. Although some pension
plans had been in existence since the
latter part of the nineteenth century,
generally employees had to deal with
the risk that income would be cut off
because of sickness, accident,
unemployment, or infirmity in old
age. In the rare instances where
workers were given pensions, the
Practice was viewed as charity, at the
discretion of the employer, not a
right of the employee to something
eamed. “Fringe” benefits, as their
name implied, were relatively
insignificant, and available to the
privileged few.

The growth of benefits in this
country can be traced to many
factors including:

* The advent of legally re-
quired benefits;

* Unionization;
© Preferential treatment under

Federal personal and corporate
income tax laws;

* Group purchase savings; and

¢ Employer efforts to reduce
turnover.

Legally required benefits, The Great
Depression was the catalyst to the
launching of a host of federally
mandated benefits paid by employ-
ers. The New Deal established two
Federal programs that provided
employee protection against finan-
cial insecurity—Social Security and
unemployment insurance. Other
income protection, such as worker’s
compensation, became available
through State laws. These benefits
are financed through employers’
contributions to specific funds.

Unions. Because the labor shortages
of World War II put wages at risk of
inflation, the War Labor Board
imposed a ceiling on wage rate
increases. This encouraged negotia-
tion for new and improved benefits,
such as paid vacations and holidays,
insurance, and pension coverage,
that were exempt from the restric-
tions placed on wage increases.
After the war, these benefits contin-
ued as part of collective bargaining
agreements between labor and
Management. Many benefits that
first showed up in union contracts
were later extended to nonunion
workers as well.

Taxes. Generally, both employers
and employees have an incentive to
choose increasing amounts of
benefits over wages alone even
though benefits are valued differ-
ently by employers and employees.
Since the employee pays taxes on
wages but not on all benefits, there is
a greater net gain in compensation to
the worker at no additional cost to
the employer when the employee
receives benefits in lieu of wages.
For instance, some benefits (like
paid leave) are taxed, others are tax-
deferred. And, corporate tax rules
provide employers with an addi-
tional incentive to offer benefits in
lieu of wages.”

Group-purchase savings. By
purchasing benefits for groups of
employees, employers can negotiate
with insurance companies for a
lower cost for life and health
insurance than individual workers
would pay for the same benefit. The
benefit provider is able to offer the
same benefit at lower rates because
of savings in administering the plan
for large groups and spreading the
risk over a larger group.

Reduce turnover. In their efforts to
limit the costs of recruiting and
training new workers, employers
seeking to reduce labor turnover
often design benefit packages that
are worth more the longer employees
stay. An example of this is paid
vacations, the amount of which is
usually directly associated to length
of employment with the firm.
Deferred compensation is a
particularly effective way to reward
continuous service. Defined benefit
pension plans, a form of deferred
compensation, give employees an
incentive to remain with their firm,
since the amount of money received
upon retirement is correlated to
length of employment with a firm.

The current compensation
picture

Prior to the New Deal, benefits
comprised about 1.7 percent of total
compensation;? by 1995, this had
jumped to 28.4 percent. The growth
in legally required benefits only
partially explains the continued
growth of benefits over time. The
benefits portion of total compensa-
tion varies by industrial group,
occupational characteristic, full- and
Part-time employment, union status,
and size of establishment. (See table
1)

While compensation packages are
diverse, legally required benefits on
average account for about one-third
of all benefit costs. Health insurance
accounts for over one-fifth of total
benefit expenditures and has been
Tising steadily. From 1965 to 1991,

Compensation and Working Conditions June 1996 4



employer contributions to private
health insurance premiums in-
creased from $4.9 billion to $152.7
billion annually.‘ (See table 2.)

Table 1. Benefit costs as a percent of
total compensation,

All private industry ....
Industry group:

Non-union workers
Size of establishment:
Small establishments
(1-99 employees) .
Large establishments

(500+ employees)

SOURCE: Employer Costs for Employee
Compensation, March 1995, USDL 95-225,
June 22, 1995.

Table 2. Components of benefits, all
private Industry, March 1995

Le

Life insurance and sickness
and accident insurance
Paid leave ..

SOURCE: Employer Costs for Employee
Compensation, March 1995, USDL 95-225,
June 22, 1995.

The emergence of new benefits,
changes in some legally mandated
‘ones, and an increase in the preva-
lence of others present unique
measurement problems. One
example is reimbursement accounts,*
for which the employer cost is
limited to expenses incurred in
administering the benefit. Deduc-
tions are made from employee pay
based on the individual’s annual
assessment of future child-care and
medical needs. These deductions are
excluded from taxable income, and

are reimbursed to the employee by
the employer after receipts for these
expenditures are filed. The em-
ployee receives a tax advantage by
reducing taxable income, while the
employer's cost is restricted to
processing the account.

In sum, the growing complexity
of compensation practices highlights
the difficulty in defining and
developing measures of total labor
costs and compensation. Stephen A.
Woodbury points out that “the
problem of measuring total real
compensation has increased as a
smaller fraction of compensation has
been taken in an easily measured
form such as wages.”6

Defining the “cost of labor”

Before the advent of this vast
array of benefits, the idea of the
“wage” as the “price of labor
services” was deeply embedded in
economic thought.” However, this
concept is being reexamined in light
of the need to develop measures of
labor costs and the price of labor
services that capture increasingly
complex compensation practices.

The following is a discussion of
two different concepts of labor costs.
The first, “full labor cost,” includes
all employer outlays associated with
the utilization of labor services. The
second,“labor exchange rate,” is a
subset of full labor cost, restricted to
costs incurred by the employer and
received by employees in exchange
for labor services. The evaluation of
this exchange rate from the
employer’s perspective is not
necessarily equal to the value the
employee places on the compensa-
tion package.

Full labor cost

Inherent in the definition of full
labor cost is that compensation
includes not only the pay received by
employees, but also all items
associated with hiring and using
labor as a factor of production. The
idea underlying this definition of
labor cost is the inclusion of the
several types of expenses, not just

5 Compensation and Working Conditions June 1996

wages and benefits, which are
necessary for the employment of
labor. Using this model, the costs of
labor include the costs associated
with administrative overhead, such
as the expenses incurred in process-
ing payroll and providing personnel
services, The concept of full labor
cost does not represent the exchange
rate in the labor market, but an
extremely complex set of inputs.
The development of the labor cost
concept stemmed from an analysis of
the demand for labor and the
inflationary pressures arising from
the cost of employing labor. Turn-
over and hiring costs are recognized
as part of total labor costs that vary
for different classes of workers.*
Tumover among workers who have
specific skills needed by a firm is
very costly, because new workers
require training before they perform
at the same level as experienced
workers. These costs are included in
the full cost of employing labor and
are determinants of the demand for
labor. These costs have been used to
explain employers’ decisions to lay
off or recall workers, as well as the
employment patterns of groups of
workers with varying skills.
Training costs present a myriad of
measurement problems. Some
training is unique to the firm (i.e.,
the use of particular equipment) and
is of little use to the employee
outside the establishment; costs for
this training (typically performed on
the job) include the time and lost
productivity of the trainer. Other
training aimed at increasing produc-
tivity also provides portable skills
that employees can use elsewhere
(e.g., remedial reading, word
Processing). Employers have the
option of providing training to
current staff on these portable skills,
or hiring workers who have previ-
ously mastered them. Furthermore,
some employers reimburse workers
for classes that are totally unrelated
to their work. Even when the total
dollar amount spent on training may
be known, there are still problems in
determining the extent to which the