The Effect of Tuition Reimbursement on Turnover

Colleen Flaherty Manchester

in The Analysis of Firms and Employees

Published by University of Chicago Press

Published in print December 2008 | ISBN: 9780226042879
Published online February 2013 | e-ISBN: 9780226042893 | DOI:
The Effect of Tuition Reimbursement on Turnover

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Gary S. Becker's (1964) seminal work on investment in human capital makes a fundamental distinction between general and firm-specific skills, which has implications for investment and employee turnover. Firm-specific human capital is defined as having value only to the current employment relationship, while general human capital is valuable to both current and potential employers. Becker's theory predicts that employees will bear the full cost of general skills training—either by paying for training directly or by accepting lower wages during training periods—because employers face the threat of not capturing the return on their investment due to “poaching” of trained employees by other employers. Tuition reimbursement programs are an example of general skills training provided by firms. This chapter examines empirically whether employees who participate in tuition reimbursement have higher retention rates than non-participants using a case study analysis of workers at a nonprofit institution. The results indicate that participation reduces employee turnover. Hence, general skills training increases retention.

Keywords: human capital; tuition reimbursement; employee turnover; general skills training; Gary S. Becker; retention; workers; firms; employers

Chapter.  11385 words.  Illustrated.

Subjects: Econometrics and Mathematical Economics

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