Chapter 2
Literature Review
1. The Contribution of Education and Training to Economic Growth
The concept that investment in human capital promotes economic growth actually
dates back to the time of Adam Smith and the early classical economists, who emphasized
the importance of investing in human skills. In the 1960s, Schultz (1961) and Denison (1962)
showed that education contributes directly to the growth of national income by improving the
skills and productive capacities of the labor force. This important finding led to a flood of
studies on the economic value of investment in education. Research in this area slowed in the
1970s, however, because of a lack of economic growth and a certain ambivalence about the
role of education in development. Recently, the World Bank has expressed renewed interest in
human development, particularly education, as is reflected in its 1980 World Development
Report.
The early attempts to measure the contribution of education to economic growth were
based either on the growth accounting approach, used by Denison and others, or on the rate
of return to human capital, an approach adopted by Schultz and others. Growth accounting is
based on the concept of an aggregate production function, which links output (Y) to the input
of physical capital (K) and labor (L). The simple form of production function, assumed in many
of these studies, is a linearly homogenous production function: Y= F(K,L).
If the economic growth is due entirely to increases in physical capital and labor , then
it should be possible to desegregate the rate of growth of output into its capital and labor
components. In this respect, Denison (1962) calculated that between 1930 and 1960, for
example, almost a quarter (23 percent) of the rate of growth output in the United States was
due to the increased education of the labor force.
Schultz’s (1963) method of measuring the contribution of education to economic
growth (that is, in terms of the rate of return to human capital, which he then compared with
the rate of return to physical capital) led him to suggest, as Denison had, that a substantial
proportion of the rate of growth of output in the United States was due to investment in
education. This method has also been used to estimate the contribution of education to
economic growth in developing countries.
The overall conclusion is clear: increase education of the labor force appears to
explain a substantial part of the grow of output in both developed and developing countries
since about 1950. However, these estimates rest on a wide variety of theoretical assumptions
that have been challenged. In particular, it is assumed that the earning of different group of
workers is a measure of their contribution to output; that the higher earning of educated
workers is a measure of their increased productivity, and therefore of their contribution to
economic growth: and that the relationship between inputs and output is a fairly simple one,
which can be analyzed in terms of aggregate production function.
Recent attempts to use econometric techniques to relate inputs to output, however,
have again demonstrated the link between education and growth of output. Recent research
for the World bank, for example, provides evidence of the link between various aspects of
human resource development and economic growth. One such study (Hicks, 1980) examined
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the relationship between growth and literacy, as a measure of educational development, a life
expectancy in 83 developing countries during the period 1960-1977 and found that the 12
developing countries with the faster growth rate had well above average levels of literacy and
life expectancy. According to these results, not only do literacy levels rise with the level of
national income, but these 12 countries have higher levels of literacy and life of expectancy
than would be predicted for countries of that income level on the basis of the regression
between literacy and per capital income. In the case of Korea and Thailand, the considerable
difference between actual and “ expected” literacy levels suggests that rapidly growing
countries have well developed human resources. It does not, of course, prove the opposite:
that countries with high levels of human resource development will thereby achieve faster
economic growth.
Further analysis by Hicks confirms the existence of a relationship between economic
growth and human resource development, as measured by literacy and life expectancy. Of
course correlation does not prove causation. Its objection automatically weakens any
argument that uses regression analysis to prove that educational development causes
economic growth. To allow for he fact that education, and other indicators of human resource
development, are both the result of an cause of economic development, Wheeler (1980)
devised a simultaneous model, which apply to data for 88 developing countries. This
simultaneous model, takes into accent the interactions, over time, between growth and human
resource development., and tries to separate cause and effect. Test with is model suggests
that education, health , and nuitrion contributed to growth of output not only directly, but also
indirectly, by increasing the rate of investment and lowering the birth rate. Wheeler found that
on the average an increase in the literacy rate from 20 to 30 percent causes national income
(GDP) to increase by 8-16 percent. After examining data for 66 developing countries in a
similar analysis, Marris (1982) concluded not only that education strongly affects economic
growth, but that general investment has less effect on growth rates when it is not supported by
educational investment.
Other research, too, has demonstrated that investment in education complements
investment in physical capital. For example, World Bank research on the links between
education and the productivity of farmer (Lau 1982) has shown that investment in improved
seeds, irrigation, and fertilizes is more productive, in terms of increased crop yields, when
farmers have four years of primary education rather than none. Thus it appears that previous
attempts to measure the contribution of education to economic growth may have
underestimated the effects of education by ignoring its indirect effects. There are other
grounds, too, for thinking that previous attempts to measure the economic contribution of
education may have underestimated the effect of education on growth. There is ample
evidence that education makes both a direct an indirect contribution to economic growth, but
the chicken-and-egg relationship between education and growth can never be fully
established. Nonetheless, strong support can be found for the notion that the most likely
causal link is from education to economic growth, rather than the other way around. The
question of whether it is more profitable to invest in men or machines cannot be answered
simply. Some evidence (see figure 2-1) suggest that in developing countries the average of
return to human capital is higher than the rate of return to physical capital, whereas in more
developed countries, the reverse is true. It is also true, however, as already been pointed out,
that investment in education often complements investment in physical capital and makes it
more productive.
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Annual income per capita.
Source: Psacharoploulos (1973)
Figure 2-1. The Social Rate of Return to Physical and Human Capital, by Level of Economic
Development
Although none of this research shows which type or levels of education are likely to
have the greatest impact on productivity or growth, it does show that spending on education
should be regarded as productive investment, rather than pure consumption. If governments
wish to maximize growth, however they need to know how educational investment compares
with other forms of investment- particularly investment in physical capital and social
infrastructure - and which forms educational investment offer the highest returns. In other
words, educational investment must be evaluated in terms of opportunity costs and the
relationship between cost and expected benefits.
2. Vocational training
Vocational training means training which impacts the knowledge and skills necessary for a
vocation.(D.Lockwood,1986)
In the recommendation concerning vocational training issued in 1962, the ILO used
‘vocational training’ in very broad context, that is, vocational training as preparation or training
for employments or promotion in all fields of economic activity and , as training not for its own
sake, but one which takes into sufficient consideration employment opportunities as the
means to maximum use and development of human resources for both personal and social
benefit.
The contents of vocational training should not overlap of formal education, although the
two are conducted in close relation with one another. Formal education gives priority to basic
knowledge and understanding and also to the formation of character. Vocational training,
however attaches importance to the teaching of technical skills and knowledge required for a
specific vocation, through actual experience. It is of course important that these are achieved
through a systematic and organized process of training.
Vocational training may have some points in common with vocational education. To
avoid confusion between the two, their differences in purpose and procedure should be taken
into consideration while keeping in mind the close relationship between them.
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<$1,000
> $1,000
Physical capital
Human capital
3. Definitions of terms
3.1. Skill
Skill is the transfer of knowledge or perception into action. Skill is practical knowledge
combine with ability. A skill can be improved through practice or training.(Lockwood,1986)
3.2 Need and Want
The first step in any training needs analysis is to differentiate between training wants
and training needs.(D.Lockwood, 1986)
Nowack (1991) discriminates theses two concepts as follows:
- A true training need exists when specific job tasks or behaviors are important and an
employee’s proficiency in them is low.
- A training want may arise when specific job tasks or behaviors are not important and an
employee’s proficiency in them is low.
Training need assessment aims at uncovering an employee’s true training needs and weeding
out training wants. Employees often want training in specific areas that are irrelevant to the job
or inconsistent with organizational objectives.
Four definition of needs
Brinkerhoff (1986) extracts four definitions of need from Stufflebeam’s study
(Stufflebeam, 1977) and indicates that deferent organization contexts an situations will call to
different approaches of needs, and very often, any situation will benefit from multiple needs
analysis perspective. The four definitions are as follows:
1. Discrepancy : This is defined different between an ideal normative, or expected level of
performance, and an actual level of performance. Use of this definition allows for measurable,
precise, and specific need identification, but use of discrepancy definition requires
measurability and previously established expectation level.
2. Democratic : A “ democratic” need, what most people prefer, select or otherwise “ vote” for
is determined by majority rule. Democratic need definition can confuse wants with needs.
Nevertheless, this definition builds consensus.
3. Diagnostic: Diagnostic needs are defined through research and casual analysis. When A
contribute to the achievement of B, then A is needed for B. This definition can help discover
true needs. Furthermore, it introduces the concept of meet and unmet needs. For example, we
cannot completely delete stress while working. The need is, then, to maintain the current low
stress level. This definition allows “ strength” analysis and avoids the trap of need analysis that
searches only for deficits
4. Analytic : Analytic needs are discovered by intuition, insight expert consideration, or even
enlightenment. Analytic needs lead to new level of performance and even allow assessment to
virtuosity because they are not tied by definition to previously set standards, majority opinion,
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or established knowledge. A weakness of this definition is, however, its dependence on
individual (or small group) expertise.
In reality, surveys of need use the work “ need” as an expression of preference and demand
and not an observable discrepancy in performance produced by lack of skill (Swierczek,
1985). But from an organization perspective, the HRD function should operate and be guide by
policy that encourage the use of all needs definition, and does not preclude the consideration
of any of them.
3.3.Need assessment for training
Why need assessment?
Fierce competition among firms is forcing managers into increasingly complex roles.
They have the burgeoning responsibility for effectiveness and efficiency, sales and research,
profits and growth, competition, government regulations and future markets and services. The
complicated demands being placed on managers have propelled managerial needs
assessment to the forefront of organizational profiles.(Bierkholff,1986)
Many companies allocate large sums of money to training and development. IBM, for
example, spends more than one half billion dollars per year educating and training workers.
Some money goes to train 10,000 workers for new jobs, other expenditures update technical
and scientific workers. Still other outlays prepare workers and managers for future challenges.
If IBM is to get maximum benefit for this staggering expenditure, then efforts must concentrate
on the people and the situations that benefit the most. To decide what training and
development is needed. IBM’s trainers first assess organizational and individual needs. (Davis,
1981).
Need assessment diagnoses problem and future challenges to be met through training
and development. For example, changes in external environment may present an organization
with new challenges. To respond effectively, employees may need training to deal with these
changes.
Ludeman (1991), tried to measure skill for identifying training need. In addition to
improving productivity, a well developed skills assessment program can help measure and
demonstrate the training need.
There is only one concrete way to know, if the training programs are actually making a
difference pre- and post - management of the skills you are teaching, say Nathan and
Stanleigh (1991). they recommend comparing base line performance data with post- training
performance data to know, whether a training program really improved employee
performance.
Parry (1990), emphasizes the importance of providing trainers with feedback about
learners who use job skills. Without feedback it is impossible to know how to revise training
programs for maximum skill development.
Customized skills assessments meet training needs. Questions can be developed so
that each category of skills aligns with a training module. The pre- training feedback is
provided as part of the program and helps focus employees on those are they need to
improve. Six months later, a post training assessment let them know that their efforts to
improve worked.
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Knowing ahead of time, that they will receive post- training feedback increases
employees’ motivation to implement their development plans and put to work the new skills
they learned in the training program.
Cohen (1990), found a significant correlation between learning and goal setting in the
training process. Pre- training assessment make it easy for participants to see the areas in
which they need to improve the help them set appropriate goals.
Ludeman (1991) uses five assessment stages for identifying training need based on
customized skills. He tries to measure skill and according to the rating criteria, skill
assessments accelerate people’s learning, job performance and professional development by
offering reliable feedback necessary for continuous improvement in addition to improving
productivity. A well- developed skills assessment program can help you measure and
demonstrate the worth of your human resource department.
People must know, what are most critical to their performance and how much, if at all,
they need to improve. Customized skills assessment is used in today’s computer technology
to meet the need for performance that could be more aptly named “continuos people’s
improvement”
Mirabile (1991) emphasized a simple approach to skill assessment for training need.
Employees skills assessment can identify the logical, relevant developmental needs of a
company’s work force. No single approach will work in all situations for all firms. But some
kinds of skills assessments is integral to the survival of every organization.
Various developmental resources exist. Each attempts to identify employee’s primary
developmental requirements in the context of their organizations. Ultimately, these resources
may be reduced to set of tools and processes for gathering specific types of information.
Developing the method of assessment.(Swierczek, 1985)
Answers to the following questions can provide the guidelines for the managerial
needs assessment strategy. These question can be used whether the assessment is
conducted internally or by an external consultant.
• What mechanisms are currently in place to disclose business problems?
• Does documentation exist from previous need’s assessments?
• What department within the organization will be involved in the needs’
assessment process?
• Which employees will be involved in the process?
• What budgeted amount is available to pay for costs incurred during the needs
assessment process?
• What time frame does the needs’ assessments have to be conducted within?
• What is the relationship of needs’ assessments to the organization’s overall
strategic plans and the strategic plans of its departments?
After all these strategic questions have been answered, the information can be
translated into a formal needs’ assessment plan: (1) Establishing the goals and objectives of
the needs’ assessment; (2) Identify specific research questions that need to be answered; (3)
Examine time and cost constrains; (4) Consider various sampling strategies; and (5) Review
data collection and analysis techniques.
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Following are several methods that can be effectively applied to an assessment.
(Swierczek,1985)
1. Advisory Committees: Committees are established to identify training needs to determine
whether the problem might be solved via training or in a different manner, and to prioritize the
needs. The purpose is to provide advice only, not to make decisions. An important side benefit
of the committee approach is generation of enthusiasm from is members for program
participation.
2. Assessment Center: the assessment centers techniques usually takes several days.
Participants engage in variety task, such as in a basket exercise, decision simulations, case
analysis, psychological test, and group discussion. Trainers observe and assess candidate’s
behavior, report their impressions in detail and combine their appraisals into a formal report.
Two kinds of conclusions typically are generated, dealing with a person’s perceived
profitability and suggestions for further development
3. Attitude survey: An attitude survey is an organization poll soliciting managers’ feelings about
a range of organizational and work-related issues. Such a survey can have open- ended
questions with narrative response, or structural questions with more objectives responses.
Because the topics covered are usually general, the data gathered are more useful for
indicating general levels of satisfaction than for generating valid conclusions regarding specific
training needs.
4. Group discussion: this technique involves a series of meetings with managers to crystallize
specific problems, analyze their probable causes, and identify areas in which training could be
of value. Because of its limited structure, this technique is best for primary needs’ analysis or
where more rigorous analytical approaches are not feasible.
5. Interviews: Some trainees individually interview managers to obtain their perceptions of
work problems and are in which they feel they need training. Interviews offer high participation
involvement and capacity to tailor the training solutions more directly towards individuals.
However, the technique is quite costly in terms of the trainer’s time.
6. Behavioral observation: Direct observation of behavior can be done with work tasks of
simulated exercises, and can be conducted by either the trainer or other supervisory
personnel. These methods can be time consuming, costly, and too passive. However, it is
beneficial in its direct focus on job skills and behaviors.
3.4. The Roles of Skill Training
3.4.1. Objectives of training
Dalton and Cosier emphasize several traditional objectives in training programs. They
are Development of skills, Orientation of Skills, and Socialization on Organizational Values.
Development of skills aims at reasonable training of employees so that their skills, at
any level, can be sufficient to meet the minimum requirements of the position. If they cannot
perform this fundamental skill well, it is unlikely that they can behave extraordinarily at some
instances in innovative orientation.
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But training encompasses a good deal more than providing skills. Orientation of skills
training helps employees figure out the process in the development of their career when they
handle a function in the organization. If there are no skills orientations, employees can develop
their own skills which may not fit with the process used in the future. It is difficult for them to
change their behavior or improve skills at that time.
Socialization to organizational values is another objective that maybe meet by training.
Every employee, no matter how modest their current position, must be aware of these values
presumably through some form of training.
3.3.2. Education and Skill training
Training is an attempt to compress experience. We want to take the knowledge and
skills that competent managers through trial and error over time and compress that learning
into few months (Macher, 1984).
The first stage of training an employee receives is from school. But the responsibility
for building a quality workforce does not end with the school. However, school must provide
well- designed preparation for future workforce.
Kearn writes in his book Winning the Brain Race : education’s goal should be to
nurture, develop, and encourage human intelligence that produces wealth- not property, not
machines, or physical plan The simple truth is that we can’t have a world-class economy
without world- class workfoce, from senior scientist to stockroom clerks. And we cannot have
world- class schools. No companies, no organization can be better than its employees If
wealth was once measured in gold, silver, and precious stones, it is now measured in what we
know.
People can fulfill their management development in a training session, whether it is
on-the-job training or formal training course. Training completes and extends skills
development after education in schools.
3.3.3. Business and Training
Smith (1992) clarified the close relationship between business strategy and training
orientation of organizations: Like strategic planners conducting environmental scanning,
program developers should identify trends and other factors that will shape a business’s future
and examine their implications. Strategic planners look at the needs of market segments; the
program developers evaluate the needs of executives and middle managers. They imitate the
methodology of strategic planners, but also give input on a major corporate asset- the
strengths and the needs of the top managers.
The size and complexity of business operations today have made training
indispensable in most companies. This trend results in a wide perspective in training. Bedi
(1991) states that no longer focusing narrowly on topics such as accountancy, salesmanship,
or production, modern training program aims at grooming all- round executives by ranging
across many fields of expertise. They focus not only on the company’s current needs, but on
the challenges likely to arise as a result of growth and diversification.
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3.5 Types of Training
A training course can serve as “ general management objectives” or solution- oriented
objectives. General Management Training objectives usually are in human relation terms that
have direct connection to the participating manager’s jobs. Solution- oriented training is aimed
at solving a problem or improving a situation on the line.
Organizations often do not clarify clearly their objective in training. Trainers should
find out which problems the organizations are facing. The more situation the training program
is, the more possible its success would be.
Having set the goals for training, trainers will consider potential alternatives to carry
out training programs. Thamhain (1992) describes briefly 12 popular methods of training:
1. Experimental Learning -This is by far the most prevalent mode of skill development.
especially for technical managers. About 25% of their working time is spent in learning on the
job.
2. Observation of management practice: Rather than learning from your own work
experiences, you learn from the experiences and examples set by others. This method seems
to be practiced by all project leaders. Both the cost and perceived effectiveness of this type of
training are low.
3. Formal On-the- job- Training - this includes specific training programs, often part of a new
job assignment, transfer or new hire. The training usually consists of a combination of closely
supervised work assignment, briefing sessions and some courses, seminars and workshops.
4. Literature Reading - Its important sources of information and knowledge which through
proper on the job application can be transformed into skills.
5. Consulting - They find them helpful, not only for quick problem solving, but also for
experiential learning and skills building through observation and of specific techniques and
practices.
6. Seminar and workshop - These could be in-plant or public offerings. Both cost and overall
effectiveness of these training methods are considered to be medium.
7. Coaching by Upper management - This seem to be particularly effective in the areas of
team building, communication, interpersonal skills, and leadership.
8. Professional Conferences - The conferences are seen as vehicles for quick updates on
new management concept.
9. Formal course (Degree Program) - Managers find these courses an effective way to gain
knowledge and the basis for further skills development, especially in administration,
communication, organization, planning, tracking and measuring of project activities.
10. Special work group - Managers perceiver these activities as highly effective for skill
development, especially in the more intricate areas of team building, communication,
leadership, and project controls.
11. Formal courses (continuing education) - These courses address the special needs of
those enrolled: they are geared toward particular project management application.
12. Job Rotation - Often conducted as part of formal on the job training, job rotation consists of
a deliberate change of job content or are assignment.
Each training method has it own strengths and limitations for skill development. A
combination of various methods could be a good way to enhance the synergistic effect of
training. For example, classroom training in combination with reading and on-the-job
experiential learning can be an excellent way to build skill in any category and at any
performance level.
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No matter whether an organization needs training for performance-based or non-
performance-based skills, the program should be rooted in the necessity of the organization.
Furthermore, the implementation of the program must be adaptive to the situation of the
organization in teams of human resources and physical capabilities. Such a program can thus
persuade employees to attend training not only as part of the organization’s requirement but
for their own career development as well.
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