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The Effect of Employer-Provided General Training on Turnover: Examination of Tuition Reimbursement Programs

Feb 2007
Working Paper
06-025
By  Colleen Flaherty
Tuition reimbursement programs provide financial assistance for direct costs of education and are a type of general skills training program commonly offered by employers in the United States. Standard human capital theory argues that investment in firm-specific skills reduces turnover, while investment in general skills training could result in increased turnover. However, firms cite increased retention as a motivation for offering tuition reimbursement programs. This rationale for offering these programs challenges the predictions of the standard human capital model. This paper tests empirically whether tuition reimbursement programs increase employee retention. The empirical analysis combines two data sources: a case study of a non-profit institution and the Survey of Employer-Provided Training, 1995 (SEPT95), which consists of training data collected from a cross section of establishments. From the case study analysis, this paper finds that participation in tuition reimbursement increases retention. Results from SEPT95 confirm this finding. These results are consistent with a theory in which investment in general human capital is used to complement investments in firm-specific human capital.