The Role of Training in a Productive Structural Change

The Role of Training in a Productive Structural Change. An Application to an Economy Specialized in Tourism

Vicente Ramos*

Javier Rey-Maquieira*

Maria Tugores[*]

University of the Balearic Islands

Abstract

The objective of our paper is to compare the training requirements between alternative tourism development strategies, which are differentiated by the quality of service offered. We focus on the case of the Balearic Islands. We use an original database that consists on a representative sample of the Balearic hotel establishments. It collects data from both employers and employees. Our data allows us to identify the differences in the workers' job characteristics, as well as differences in human capital, both in education and in on the job training, depending on the category of the hotel. We use a discrete choice model in order to identify both the employer and the employee characteristics that determine the provision of training. We conclude that the formal educational endowment is not a strong constraint for the mobility of workers between category groups, and we show that on the job training has a role to play in the transition between alternative tourism development strategies.

1. Introduction

Motivation: The Balearic Islands economy

The pattern of specialisation is not irrelevant for the capacity of an economy to generate income and welfare. This is indeed true for an economy specialised in tourism, where the kind of market segments in which the economy ends up specialised determines its basic competitiveness factors. On the one hand, a mass-tourism development strategy, usually means price competition and therefore, the need of maintaining low prices and costs, with the consequent dependence on a large number of visitors that generate congestion problems and externalities as large environmental, cultural and social costs. These externalities not only reduce the residents' utility but they also affect the tourism services production function and, hence, threat growth sustainability. On the other hand, a high quality tourism development strategy implies competition based on differentiation and innovation, a lower number of visitors and therefore, a larger potential for sustainable growth.

Given this, in several mature tourism destinations, highly dependent on mass-tourism, has grown concern about the need to change the pattern of specialisation, shifting resources from low quality to high quality tourism services. This structural change has implications for the labour market, since there may be substantial differences in wages and employment skills required in these two kinds of tourism supply.

Our paper analyses the role of training differentials among low quality and high quality tourism services as well as the training determinants in the tourism accommodation sector focusing on the case of the Balearic Islands in Spain.

The Balearic Islands is a very important tourism destination relative to Spain and one of the most well known tourism centres in the Mediterranean Sea. Residents in the Balearic Islands are less than 800.000 people while the number of tourists arrived in 2001 were near 12 million people. Most of them (66,23%) were allocated in hotels of different categories. The number of tourism allocations is about 400.000 beds, and the total of overnight stays in 2001 was about 63 million. Many residents work in this sector, that is, more than 55.000 people, representing more than 15% of the occupied. Finally, the weight of the tourism exports in the aggregate demand of the Balearic economy is about 40%.

In this context of tourism congestion, a social debate has arisen in the Balearic Island about the possible strategies to reduce the environmental and social costs of tourism development and guarantee its sustainability. In this debate, a structural change in favour of high quality tourism has drawn special attention given that more quality in the tourism services would presumably allow the same or higher income with a smaller number of tourists.

Specifically, we are interested in the training requirements for workers to shift from the mass tourism sector to the high quality tourism sector. This is a crucial aspect for assessing the possibilities of a tourism economy to succeed in the structural change commented above and evaluating the associated transition costs.

We use the category of the hotel as the element that differentiates between high and low quality tourism services. The reason to do so is that the legislation that regulates the category of the different establishments is associated with the quality of the services offered by the different hotels. That is, for example, the existence of sport facilities, the varieties of the cooking service, the size of the room, the frequency of the cleaning room service, the existence of some technological equipment, among others.

We define three groups of establishments depending on the category. The first one includes those hotels with one or two stars; hence, these establishments provide low quality tourism services. The second one includes those hotels of three stars category. These establishments represent middle quality services. Finally, the last category group gathers those establishments of four or five stars; this last group represents the higher tail of the quality service distribution.

We also consider that there would not be demand restrictions in case of a structural change. This is a common hypothesis despite the fact that the Balearic Islands represent a great part of the tourism supply in Spain. When considering other destinations, such as Greece, Italy, France or Croatia, among others, the supply offered in the Balearic Islands turns out to be insignificant, and then the non-existence of demand restrictions is not a very strong assumption.

In the analysis of the training differentials between the two tourism sectors, we follow different steps. After having analysed the survey design and the database used in the paper in section 2, we enter in the empirical analysis. Firstly, in section 3, from a descriptive point of view, we compare the differences in the workers' job characteristics, the differences in human capital in both education and on the job training, and the training requirements between hotels of different categories. Secondly, we use a discrete choice model in order to identify both, the employer and the employee characteristics that determine the provision of training to the workers. The results are explained in section 4. Finally, we present the main conclusions of the paper in section 5.

Review of related literature

Investment in on the job training is a key element of human capital formation. It has received considerable attention in the economic policy circles where it has been seen as an instrument to raise productivity and standards of living, specially, of low skilled workers.

Several contributions show the importance of human capital investment, in particular, the importance of on the job training investment, as a competitive strategy to generate sustainable growth and wealth. Theoretical papers mainly focus on the division of the costs and benefits of this investment, as well as in the conditions under which the level of training is suboptimal. Starting from Becker (1962), and following by the work of Acemoglu and Pischke (1999), Stevens (1994), or Tugores (1998), for example.

From the empirical point of view, most of the studies have focused on the extent and the impact of the investment in human capital. Most of the studies in this topic analyse the quantity of training provided and the determinants of investing in this type of human capital (among others, job characteristics, previous education, and individual characteristics). Examples of these studies are Altonji and Spletzer (1991), Francis et al. (1998), Greenhalg and Steward (1987), and Kennedy et al. (1994).

Regarding the estimation of the returns to the different types of human capital, we can distinguish different types of papers. On one hand, the papers that analyse the effects of formal education (for example, by specifying a wage offer equation as proposed by Mincer (1974)). On the other hand those papers which focus in the returns of on-the-job training (Among others Bartel (1995), Bishop (1994), Booth and Bryan (2002), and Lynch (1992)). This branch of the literature has shown the positive effect of investment in human capital on wages and on job stability (for this last issue let us mention Booth and Satchell (1994), Lillard and Tan (1992), and Mincer (1983)).

However, in the academic literature only a few studies focus on training needs in a context of structural change. There is a branch of related literature that estimates the occupational projection (for example in Spain Fina et al. (2000)). In particular, we have not found any evidence of this type of research in the context of the tourism sector. Our descriptive analysis of the differences in the education and training needs depending on the category of the establishment analysed would be an important progress in this direction.

However, some other empirical studies have been done in the context of the human capital formation and the tourism sector. We can find a number of papers that analyse training needs in the tourism sector (Amoah and Baum (1997), Baum (1994), Brothertonand et al. (1994), and Woodbury (1992) among others). As far as we know, the issue of the training requirements for a shift from mass-tourism to high quality tourism has not been analysed in the economic literature yet.

2. Survey design and the database

The empirical research presented in the next section of the paper comes from the analysis of an original database obtained from a survey carried out on a representative sample of the Balearic hotel establishments. The field study involved an initial survey conducted in the spring of 2001, while the main body of the process was conducted from August to September of the same year.

The objective of the survey, designed by the authors of this paper, was to cover the lack of information about the labour conditions in the hotel sector of the Balearic Islands. Among a wider range of issues the design of the survey was made being aware of the potential importance of the training decisions, both for the employee’s status, and for the hotel establishment’s strategies.

In order to obtain a more complete database, we design two questionnaires for different populations of analysis.

• Firstly, the hotel establishments in the Balearic Islands. The sample size was computed in order to be representative for the three different groups of establishments’ category that we plan to study. Once the representativity of the three star hotels was guaranteed, we over-represent the other two types of establishments (less and more than 3 star hotels) in order to capture the workers' heterogeneity. The sample consists on 130 hotel establishments.
• Secondly, the employees in the hotel establishments in the Balearic Islands. The sample size is 1900 workers, and ensures the representativity both, for males and females.

The stratification of the field study was based on the initial survey and the population characteristics. We control for the geographical distribution, the hotel category and the occupational distribution of the workers. Once the sample conditions were established, the interviewee comes form a random sampling among the subpopulations defined.

The empirical research presented in the next section uses a final database that merges both samples, in order to have information on individual and firm characteristics. For the descriptive analysis and the determinants of training, we drop 15 observations for which there was no information on the explanatory variables. The distribution of the 1885 workers among the three category groups is 351 in 1* or 2*, 763 in 3* and 771 in 4* or 5*.

3. Descriptive statistics

In this section, we present some descriptive statistics; the information is organised in four parts. The first part reflects some labour differences of the individuals working in different quality tourism establishment. The second part is devoted to the differences in education endowments by the category of the establishment. Part three analyses the role of training in each category group. These three first parts use the sample of 1885 individuals that we described in the previous section. Finally, in the last part, we present information about the differences of the hotel establishments involved in each of the category groups that we have defined. In this last part, we use information from the establishment’s sample, and hence we have information about 130 hotel establishments.

3.1 differences in labor characteristics

In Figure 1, we present the distributions of workers by its contractual relation with the firm, for each of the establishment’s category groups. Given the high seasonal nature that involves the tourism production process there is a particular contractual relation very common in the sector, which is fix intermittent. Those workers have an undefined term contract, but are only occupied in the hotel for a maximum of 9 months a year. Clearly, the rational for this legal instrument is given by the tourism season extend. In those establishments of the lower quality category group, the distribution of contractual linkage is clearly biased to less steady relations. Nearly the 50% of the workers in this group have a temporary seasonal contract. As we move up in the category, the stability of the contractual relations grows. In fact, the proportion of individuals with a fix contract is 65% higher in the establishments of the higher category group that in those establishments of the lower category group. Hence, one immediate conclusion is that the movement from low quality to high quality tourism services supply will contribute to a decline in the degree of labour market instability.

Figure 1. Contractual relation by category group.

In Table 1, we compare the differences in wages in the three category groups. We present three different measures of the wage. In the first column, we present the net monthly amount of money[1] that the individual obtains from its work in the establishment. In the second column we control for the possible differences in the hour of work, hence we divide column one by the number of hour that the individual has in his contract. Finally, in column three we use the number of hour the individual is actually working. It is clear from the table that, by any of the different measures, the mean wage increases as the establishment moves to higher categories.

Table 1: Differences in wages by category group.

Net Monthly Wage / Contractual W/H / Actual
W/H
1* or 2* / 882.10 / 5.49 / 5.29
3* / 924.70 / 5.77 / 5.43
4* or 5* / 961.85 / 5.99 / 5.58

3.2 Differences in educational endowments

In this part of the descriptive statistics we analyse the distribution of the educational endowments both, by the category of the hotel establishment and by the occupational hierarchy.

In Table 2, we present the distribution of education endowments in percentage terms by category group. The information derived from this table is precisely the lack of a clear relation between the category group and the education endowments. For instance, there is a higher weight of non-primary educated workers in the lower quality establishments, but there is also a higher incidence of university workers. This result is very illuminating for the motivation of the paper because it indicates that the formal educational endowment is not a strong binding condition for the mobility of workers between categories.

Table 2. Differences in educational endowments by category group.

Less than Primary /

Primary

/ Secondary School / Higher Education / Tourism Studies
1* or 2* / 13.68% / 45.87% / 22.51% / 7.69% / 10.26%
3* / 8.74% / 46.81% / 31.68% / 5.87% / 6.91%
4* or 5* / 8.95% / 47.60% / 28.02% / 6.87% / 8.56%

In Table 3, we analyse the distribution of educational endowments in the different steps of the occupational hierarchy. We define the variable First that takes the value 1 if the individual has the top responsibility in its department[2]. We define the variable Second if the individual has the second responsibility level. The variable Others include those individuals that have a lower responsibility. The proportion of individuals with university and tourism studies increases and the proportion of individuals with primary, or lower education, decreases with the occupational hierarchy.

Table 3: Differences in educational endowments by occupational hierarchy

First / Second / Others
Less than Primary / 7.18% / 6.34% / 11.06%

Primary

/ 48.85% / 46.64% / 46.11%
Secondary School / 23.85% / 31.34% / 28.89%
Higher Education / 8.33% / 7.84% / 5.84%
Tourism Studies / 11.49% / 7.84% / 7.32%

3.3 DIFFERENCES in training

In this part of the descriptive statistics, we analyse the relations between training and category group, the occupational hierarchy, the educational endowment and the stability of the labour contract.

We define our variable of interest (Training) as having done any formal training course financed by the present employer. In the initial survey we realise that one common training method used in the sector comes from the co-operation of the firms with the local authorities to incentive training. In that cases the course is financed by the local authorities but takes place during the working time and then, the firm also assume part of the cost[3]. Hence, our variable of interest includes also those individual that respond that the training course was not financed by the firm but takes place during their normal working time.

Table 4 shows the percentage of individuals that receive training in each of the category groups. The first column displays those percentages for the whole sample, while the second and third column distinguishes them by gender. The percentage of trained individuals increases with the model in the three cases. It is interesting to notice that the growth path is steeper in the case of women. In the higher quality categories, there are small differences in the percentage by sex while in the case of lower category groups the differences are remarkable.

Table 4: percentage of trained workers by category group.

Whole

/ Men / Women
1* or 2* / 10.83% / 16.45% / 6.53%
3* / 21.77% / 25.55% / 17.50%
4* or 5* / 26.72% / 27.19% / 25.99%

In Figure 2, we present the percentage of individual, which receive training for each of the hierarchy variables that we defined before. It is clear from the figure that individuals receiving more training are those in the upper levels of the hierarchy. Hence, whatever is the causality direction, there is more incidence of training in those individuals that are promoted.

Figure 2: Differences in training by occupational hierarchy.

Figure 3 presents the percentage of individual receiving training financed by the firm for each educational endowment. This figure shows that there is a positive relation between training and education. The percentage of individuals that receive training increases as the maximum level of completed studies increases. Note also that the group with more incidence of training is the group of individuals with specific tourism studies.