Training and Lifetime Income

American Economic Review · 2006 · Volume 96 · Issue 3

Abstract

This paper challenges the notion that on-the-job training investments are quantitatively important for workers' welfare and argues that on-the-job training may not increase lifetime income by more than 1 percent. I argue that it is very difficult to reconcile the slowdown in wage growth late in a worker's career with optimizing behavior unless the technology for learning on the job is such that it generates very low gains from training. The analysis is based on a nonparametric methodology for estimating the learning technology from wage profiles; the results are arrived at by comparing the lifetime income when the worker optimally invests in his human capital to the one where he does not make any investments. (JEL: E24, J24, J31)

Keywords

Human Capital, Skills, Occupational Choice, Labor Productivity, Wage Level and Structure, Wage Differentials

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