On-the-Job Training
What is On-the-Job Training?
On-the-job training is skill building that happens while a person works, raising their productivity and the wage they can command without more schooling.
On-the-job training is an investment in human capital: the firm and the worker give up output now in exchange for higher productivity later. Economists split it into general training, which raises productivity at any employer (software, safety procedures, customer service), and firm specific training, which is valuable only at the current employer (internal systems, one plant's machinery). The distinction decides who pays, because a firm cannot recover the cost of general training if the trained worker leaves, so workers usually fund it by accepting lower wages while learning, whereas employers willingly fund firm specific skills and share the returns. Unlike formal schooling, which happens before hiring and is visible to every employer, on-the-job training leaves little trace on a resume, which is why employers treat years of experience as a proxy for it.
On-the-Job Training: a worked example
A clinic pays trained medical assistants $24 an hour. It hires a trainee at $18 an hour who produces only $20 an hour of value while learning. The clinic earns $2 an hour on her during training, the $20 of output minus the $18 wage, so after 1,000 training hours it has recovered $2,000 of training cost. Once she is trained her output is worth $30 an hour and she is paid the going $24. If she quits the day training ends, the clinic loses the $6 an hour it was counting on, which is exactly why firms hesitate to fund skills a worker can take elsewhere.
The mistake students make with on-the-job training
Students treat all training as something the employer pays for and assume the employer captures the benefit. For general skills it is usually the reverse: because a trained worker can take those skills elsewhere and demand a higher wage, the worker bears the cost through a lower wage while learning. Employers fund firm specific training instead, since those skills lose their value the moment the worker walks out the door.
On-the-Job Training questions
What is the difference between general and firm specific training?
General training raises a worker's productivity at any employer, while firm specific training raises it only at the current one. Learning a widely used accounting package is general; learning one company's internal ordering system is firm specific. The split predicts who is willing to pay, because workers absorb the cost of general skills and employers fund firm specific ones.
Who actually pays for on-the-job training?
Workers typically pay for general training by accepting a lower wage while they learn, and employers pay for firm specific training. Neither side wants to invest in skills whose returns the other can walk away with. Most real training is a mix of the two, so in practice the cost tends to be shared.
How does on-the-job training show up in wages?
On-the-job training raises a worker's marginal revenue product, so it raises the wage an employer is willing to pay. This is a large part of why earnings rise steeply in the first years of a career and then flatten out. It also means two workers who finished identical schooling can earn very different amounts a decade later.
Related terms
Common comparisons
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