Interpreting the Evidence on Life Cycle Skill Formation

164 Pages Posted: 14 Jun 2005 Last revised: 19 Jun 2022

See all articles by Flavio Cunha

Flavio Cunha

University of Pennsylvania - Department of Economics

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)

Dimitriy V. Masterov

University of Chicago - Harris School of Public Policy

Multiple version iconThere are 2 versions of this paper

Date Written: May 2005

Abstract

This paper presents economic models of child development that capture the essence of recent findings from the empirical literature on skill formation. The goal of this essay is to provide a theoretical framework for interpreting the evidence from a vast empirical literature, for guiding the next generation of empirical studies, and for formulating policy. Central to our analysis is the concept that childhood has more than one stage. We formalize the concepts of self-productivity and complementarity of human capital investments and use them to explain the evidence on skill formation. Together, they explain why skill begets skill through a multiplier process. Skill formation is a life cycle process. It starts in the womb and goes on throughout life. Families play a role in this process that is far more important than the role of schools. There are multiple skills and multiple abilities that are important for adult success. Abilities are both inherited and created, and the traditional debate about nature versus nurture is scientifically obsolete. Human capital investment exhibits both self-productivity and complementarity. Skill attainment at one stage of the life cycle raises skill attainment at later stages of the life cycle (self-productivity). Early investment facilitates the productivity of later investment (complementarity). Early investments are not productive if they are not followed up by later investments (another aspect of complementarity). This complementarity explains why there is no equity-efficiency trade-off. for early investment. The returns to investing early in the life cycle are high. Remediation of inadequate early investments is difficult and very costly as a consequence of both self-productivity and complementarity.

Suggested Citation

Cunha, Flavio and Heckman, James J. and Lochner, Lance and Masterov, Dimitriy V., Interpreting the Evidence on Life Cycle Skill Formation (May 2005). NBER Working Paper No. w11331, Available at SSRN: https://ssrn.com/abstract=720417

Flavio Cunha

University of Pennsylvania - Department of Economics ( email )

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James J. Heckman (Contact Author)

University of Chicago - Department of Economics ( email )

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Lance Lochner

University of Western Ontario - Department of Economics ( email )

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Dimitriy V. Masterov

University of Chicago - Harris School of Public Policy ( email )

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