The Costs of Learning from Experience with Respect to the Firm

Abstract

Decisions regarding the amount and form of training are central to human resources management. Yet it is generally recognised that the acquisition of skills may also arise from on‐the‐job experience. There will be many cases where learning by experience will be the most important method of skill acquisition. Yet learning from experience may be thought to require little planning, since it cannot be avoided. As such, little attention is generally given either to costing learning from experience or evaluating its implications. This article adopts an economics perspective to examine the costs of learning from experience for the firm. An implicit assumption of the analysis is the “economic” or “rational” manager and employee evaluating benefits and costs in order to maximise the difference. This may at first appear to the personnel manager less than realistic — but this is to misunderstand the nature of economic analysis. The analysis is based on building models containing (economic) assumptions of behaviour, and thus the effectiveness of market forces. It recognises that problems are highly complex and builds in simplifying assumptions with the intention that they are interpreted in this light.

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