learning-by-doing. Information about the length, type and timing of programs may not be available, or may be self-reported. In some cases, perceptions of training might vary.<sup>11</sup> In most studies the sample includes large and formal firms due to data limitations. Hence it is important to remember what OJT studies measure (and what they exclude). Finally, when measuring the impact of training, it is important to treat for selection bias as the results may capture the superior attributes of the worker rather than the actual effect of training. At the firm level, the main difficulty in measuring impacts comes from the fact that firms offering OJT tend to already have a set of better observable (and unobservable) characteristics.

The studies included in the review (for example, Almeida and Carneiro 2009; Dearden, Reed and Van Reenen 2006; and Konings and Vanormelingen 2015) treat for selection issues and indicate that even after this, increasing OJT could have productivity gains.

Beyond quantitative challenges, another issue with the literature on OJT is that few studies delve into the economic mechanisms explaining the causal relationship between OJT and productivity. To improve our understanding of the economic mechanisms, we will review the literature on barriers to provision of OJT in section 3.1 and section 3.2 to explore these issues more.

In general, returns to firm productivity and worker wages are both positive (factoring in the cost of OJT) with regard to OJT provision. Firm productivity gains are higher than wage gains, indicating an imperfect pass-through of gains to workers and the presence of a high general skills content to the OJT (see Section 2.2. for more information on type of skills).

# 2.2 At future employer: Evidence of positive externalities

_To what extent do future employers benefit from hiring trained workers? What is the extent of positive externality (and the associated free rider problem) in the provision of OJT?_ To explain the gap between the productivity and wage premium for trained employees, theory suggests a situation of general training in imperfect markets (Acemoglu and Pischke 1998, 1999, 2000; Becker 1962). Recent empirical evidence appears to validate this. The evidence points to two specific results about firm provision of OJT: (i) productivity gains more than wage gains indicating worker willingness to bear some cost for the training as the firm cannot fully appropriate the benefits of OJT in imperfect markets (we saw this in the previous section 2.1); and (ii) future employers willing to pay a wage premium for previously trained workers, indicating the presence of transferrable (general) skills and positive externalities (we will discuss in this section 2.2). Therefore, much of OJT is general training relevant to the current firm and others in the market.<sup>12</sup> The literature reviewed validates the presence of general skills content in the training imparted. Booth and Bryan (2005) find that workplace training is associated with significantly higher wages at current and future firms, with a larger impact at future firms, using a household panel survey in the United Kingdom. Accredited OJT is more strongly associated with higher wages at both current

> 11 Black and Lynch (1995) mention that “... a supervisor who is assigned to work side-by-side with a new employee may view the time she spends with a new hire as training, whereas the employee views the fact that the supervisor is always hanging around as monitoring, not training”.

> 12 If the returns to future employers were not statistically significant, one could have argued for the wedge between wages and productivity to be created by perfect competition and firm-specific training. However, this does not seem to be the case given the rise of productivity at future employers as a result of hiring previously trained workers.

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