Interpreting the Evidence on Life Cycle Skill Formation

165 Pages Posted: 28 Jul 2005

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 Public Policy

Multiple version iconThere are 2 versions of this paper

Date Written: July 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.

Keywords: skill formation, education, government policy, educational finance

JEL Classification: J31, I21, I22, I28

Suggested Citation

Cunha, Flavio and Heckman, James J. and Lochner, Lance and Masterov, Dimitriy V., Interpreting the Evidence on Life Cycle Skill Formation (July 2005). IZA Discussion Paper No. 1675. Available at SSRN: https://ssrn.com/abstract=766744

Flavio Cunha

University of Pennsylvania - Department of Economics ( email )

3718 Locust Walk
Room 527
Philadelphia, PA 19104
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James J. Heckman (Contact Author)

University of Chicago - Department of Economics ( email )

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Chicago, IL 60637
United States
773-702-0634 (Phone)
773-702-8490 (Fax)

National Bureau of Economic Research (NBER)

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American Bar Foundation

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Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Lance Lochner

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dimitriy V. Masterov

University of Chicago - Harris Public Policy ( email )

1155 East 60th Street
Center for Social Program Evaluation
Chicago, IL 60637
United States

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