NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Learning-By-Doing Vs. On-the-Job Training: Using Variation Induced by the EITC to Distinguish Between Models of Skill Formation

James Heckman, Lance Lochner, Ricardo Cossa

NBER Working Paper No. 9083
Issued in July 2002
NBER Program(s):   LS   PE

This paper investigates the impact of wage subsidies on skill formulation. We analyze two prototypical models of skill formation: (a) a learning-by-doing model and (b) an on-the-job training model. We develop conditions on the pricing of jobs under which the two models are equivalent. In general they are different and have different implications of wage subsidies on skill formation. On-the-job training models predict that wage subsidies reduce skill formation. Learning-by-doing models predict the opposite. The provisional evidence favors the learning-by-doing model. We apply our estimates to investigate the impact of the EITC on skill formation. We estimate that the EITC reduced the long term wages of participants with low levels of education.

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Document Object Identifier (DOI): 10.3386/w9083

Published: Phelps. E. (ed.) Designing Inclusion: Tools to Raise Low-end Pay and Employment in Private Enterprise. Cambridge: Cambridge University Press, 2003.

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