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

66 Pages Posted: 26 Jul 2002 Last revised: 14 May 2010

See all articles by James J. Heckman

James J. Heckman

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); American Bar Foundation; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Lance Lochner

University of Western Ontario - Department of Economics; National Bureau of Economic Research (NBER)

Ricardo Cossa

Charles River Associates

Date Written: July 2002

Abstract

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.

Suggested Citation

Heckman, James J. and Lochner, Lance and Cossa, Ricardo D., Learning-by-Doing vs. On-the-Job Training: Using Variation Induced by the EITC to Distinguish between Models of Skill Formation (July 2002). NBER Working Paper No. w9083. Available at SSRN: https://ssrn.com/abstract=320273

James J. Heckman (Contact Author)

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Lance Lochner

University of Western Ontario - Department of Economics ( email )

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Ricardo D. Cossa

Charles River Associates ( email )

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