On-the-Job Training, Establishment Size, and Firm Size: Evidence for Economies of Scale in the Production of Human Capital

Oi argues that the costs of monitoring employees rise with the value of the entrepreneur’s time. One way of economizing on these monitoring costs is through the provision of on-the-job training for new employees. In this paper, we argue that differences in training by firm- and establishment-size arise from cost advantages for larger firms; specifically, large firms and establishments have economies of scale in the provision of formal training and greater opportunities for informal coworker training. A unique data set is employed to estimate the relation among employer size and the intensity, duration, and composition of various training measures. It is possible that these cost advantages, which lead to greater amounts of training for employees of large firms, may explain, in part, the wage rate–firm size differential.