Training and Lifetime Income

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 one percent. In particular, 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 non-parametric 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 when he does not make any investments at all.

Keywords: Training, Human Capital Formation, Wage Level and Structure

JEL Classification: E24, J24, J31