The skills to pay the bills: Returns to on-the-job soft skills training

Soft skills (or non-cognitive skills) – such as time management, communication, and problem-solving – are widely acknowledged to be important in the workplace. Global surveys of employers indicate that these skills are in high demand (Cunningham and Villasenor 2016), and they are associated with better labour market outcomes such as higher wages for workers (Heckman & Kautz 2012, Deming 2016).

Which leads to the question of whether employers should invest in soft skills training for their workers. The answer depends on several factors, two of which are crucial in making the business case for soft skills worker training.  The first, of course, are the returns to soft skills training relative to their cost (both in terms of direct training costs, and higher wages for the skilled workers). These returns might be in the form of higher worker productivity directly (e.g. through a more motivated workforce), or changes in worker behaviour that increase productivity indirectly, such as through punctuality or team work. The second determinant is whether trained employees actually stay with the employer, or leave and take their skills elsewhere.

To investigate the business case for training workers in soft skills, we implemented a randomised controlled trial in five garment factories in Bangalore, India (Adhvaryu et al. 2016). The factories were operated by Shahi Exports Pvt. Ltd., India’s biggest garment export firm, and covered about 2,700 female garment workers who expressed interest in the program. These workers spend most of their time on a production line. During the course of production, coordinating with co-workers and line supervisors is crucial to the smooth running of the line, and soft-skills such as internal motivation and goal setting can facilitate meeting production targets in both quantity and quality. We set up the experiment to estimate both the effects of soft skills training on the worker who underwent the training, and the effects of having a trained co-worker for workers who were not themselves trained. We did so by employing a two-stage design: first, we assigned production lines to treatment and control; and second, within treatment lines, we assigned workers in treatment lines to treatment and control. The workers assigned to treatment received the training, the rest did not. Comparing workers who received the training to control workers in control lines provides the direct effect of soft-skills training (since the latter did not interact with the trained workers). Comparing control workers who are on the same production lines as treated workers to control workers in control lines provides the indirect effect of soft-skills training, or the effect of an untrained worker working on a team with a trained worker.

The training was an 80-hour workplace-based soft skills training programme, called the Personal Advancement and Career Enhancement (P.A.C.E.) programme. The programme aimed to empower female garment workers via training in a broad variety of life skills. It included modules on communication, time management, successful task execution, financial literacy, and problem-solving.  It was conducted by trainers in the factories who were employed full-time for the purpose. Each treated worker attended about two hours of training per week, and the programme ran for about 11 months in total.

To estimate the impact of training, we measured a large number of workplace outcomes on productivity and worker conduct before, during, and for nine months after the programme. The former included outcomes such as productivity (the number of garment operations conducted by the worker normalised by the difficulty of the operation) and the level of complexity of the garment operations the workers did, and the latter included worker conduct such as attendance and tardiness. Each outcome was measured either at the hourly or daily level, providing us the ability to look for changes in behaviour as training progressed, as well as to test whether the impact of training diminished with time. We supplement these data with a worker-level survey conducted one month after the training ended.

Our results indicate strong support for the hypothesis that workplace-based soft skills training is good for employers’ bottom-line. Treated workers are more about 7 percentage points more productive than control workers, and are more likely to be assigned to complex tasks. The impacts are lasting, and show no indication of diminishing up to nine months after programme completion (when we ceased data collection), suggesting that learned skills translated into persistent improvements in workplace outcomes. Furthermore, the programme did not cause workers to leave the firm – retention actually improved in the treatment group relative to the control during the program period (the retention effect diminished after program completion, but treated workers were still not more likely to leave the firm relative to control workers). The treated workers worked about six days more than control workers during the training, and about 15 days more after training completion. Indirect effects of the training were positive as well; workers who were not trained but worked on the same production lines as trained workers were also more productive and assigned to more complex garment operations relative to untrained workers who did not work on the same production lines as trained workers. This indicates that the training did indeed have positive spillover effects. Untrained workers in proximity to treated workers worked for about eight days more for the duration of the programme than control workers.

Results from the survey data support these impacts on workplace outcomes. P.A.C.E.-trained workers displayed higher self-regard and sociability. They were 15 percentage points more likely than control workers to request training in technical skills, and 7.7 percentage points more likely to report that they expected a promotion within the next six months. They were also more likely to save for their children’s education and utilise state-sponsored health care and pension schemes.

Using the estimated effects of the programme, back of the envelope calculations indicate that the net rate of return to the company’s investment in P.A.C.E. training for workers was at nearly 250% nine months after the training. The high return to the program can be explained by the fact that the low cumulative costs flatlined after programme completion, while the benefits (mostly accruing due to productivity increases) continued to rise. The costs stabilised at $90,285 11 months after the start of programme, while the gains continued to grow up to $321,145 at the end of 20 months.

Nearly 60,000 workers across 12 countries (including over 26,000 workers in India) have been trained in life skills through the P.A.C.E. programme, which former US president Bill Clinton referred to in TIME as an idea that is changing the world. Our study indicates that programme like P.A.C.E. have the potential to increase worker skills and wages and be profitable for firms.

Editor's note: This article is based on this PEDL project.

Photo credit: Ishan Khosla/flickr.

References

Adhvaryu, A, N Kala and A Nyshadham (2016), “The skills to pay the bills: Returns to on-the-job-soft skills training”, PEDL research paper, CEPR.

Cunningham, W V and P Villaseñor (2016), "Employer voices, employer demands, and implications for public skills development policy connecting the labor and education sectors", The World Bank Research Observer, 31(1): 102-134.

Deming, D J (2015), “The growing importance of social skills in the labor market,” The Quarterly Journal of Economics 4(1): 1593–1640

Heckman, J J and T Kautz (2012), "Hard evidence on soft skills", Labour Economics 19(4): 451-464.