Incentives that Lead to a Better-Trained Workforce

The push for a more globally competitive American workforce has led to calls for increased incentives for people to join educational and training programs.

While critics question if the training efforts are worth it, new research from the University of California, Berkeley’s Haas School of Business argue that they are an effective option for employers.

A one-time outcome-based financial incentive, if based on proven psychological techniques, could help workers embrace a long-term and sustained interest in training says Teck-Hua Ho, the William Halford Jr. Family professor of marketing at Berkeley-Haas.

“In a constantly changing work environment, workers must commit and continue to participate in training in order to stay relevant and competitively employable,” Ho wrote in a study: Can a One-time Incentive Induce Long-Term Commitment to Training?

The paper, co-written by Catherine Yeung of the National University of Singapore, highlights the dilemma faced by many U.S.-based small- and medium-sized businesses. They need highly-skilled workers to compete, but, unlike big corporations, many of them do not have the resources for comprehensive, sustained, mandatory programs.

In many cases, small- and medium-sized businesses must look to outside organizations or the government to provide training and must rely on employees’ self-motivation to actively participate in it, Ho and Yeung wrote.

The problem is that workers’ participation in such training is likely to be low because courses are undertaken at their own discretion, potentially leaving them and their employers out-of-touch with the needs of the market, the authors said.

However, based on a field study conducted in collaboration with a non-profit vocational center, Ho and Yeung found that workers could be convinced to commit to long-term training based on incentives that are presented as a reimbursement to absorb out-of-pocket expenses instead of as a cash reward, in combination with a requirement to make a non-binding commitment to take specific courses of their choosing.

The field study involved 4,000 workers, some of whom were offered a one-time cash incentive of $60 to take two, two-day courses, each of which costs $30, within four months. The $60 incentive was either presented to the workers as a reimbursement to absorb the out-of-pocket expenses of taking the training courses, or as a cash reward for taking them.

Regardless of how the incentive was presented, workers only received it if they completed both courses within four months. Some of the workers were also asked to make a non-binding commitment to undertake training by specifying which two courses to take and when to take them.

The study found that workers who received a one-time incentive on average completed six times more courses than those who did not. Tracking these workers for another nine-and-a-half months in which no incentives were offered showed that only those who had received the one-time incentive as a reimbursement to absorb out-of-pocket expenses and made a non-binding commitment to specific courses continued to stick with the training program.

Ho and Yeung said their work was based on known studies on the use of incentives to influence behavior, such as programs used to encourage people to exercise, lose weight, and, in developing countries, to send their children to school.

At a time of rising worries that American workers are falling behind better-educated and better-trained employees in Asia and Europe, they state that the study presents important options for employers and government.

“While managers and policy makers know that incentives can motivate workers, many are not aware of the importance of incorporating psychological techniques into the design of an effective incentive program,” Ho and Yeung wrote.

A one-time outcome-based financial incentive, if based on proven psychological techniques, could help workers embrace a long-term and sustained interest in training,

says Teck Ho, the William Halford Jr. Family professor of marketing at Berkeley-Haas.

—Benjamin Pimentel

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