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Credit Constraints And Training After Job Loss

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  • Bruce Chapman
  • Thomas F. Crossley
  • Taejong Kim

Abstract

It is a widely held view that imperfect capital markets mean that individuals from poor backgrounds cannot borrow in order to finance educational investments. This view pervades policy formation, and is reflected in the fact that post-compulsory education processes in all countries involve considerable government intervention and large public subsidies. But are the existence of credit constraints an empirical reality? This paper uses unique data to take a new approach to this question. Specifically, the 1995 Canadian Out of Employment Panel (COEP) allows us to explore the financial resources and skill formation choices of a large number of recent job losers. This approach has several advantages, including: a direct test of the role of finances in determining training; the availability of considerable information concerning individual histories; and the fact that the unemployed are a particularly apposite group with which to explore the questions of credit constraints. We find that credit constraints do appear to limit the human capital investments of a significant minority of job seekers. In particular, controlling for a broad range of background characteristics (including past educational investments and labour market outcomes), the possession of liquid assets at the time of job loss is strongly associated with subsequent self-financed training. This basic finding is corroborated with several different kinds of evidence drawn from the survey. The data also allow us to make a rough estimate of the extent to which participation in training would have been increased, had no part of our sample been credit constrained.

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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 466.

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Length: 29 pages
Date of creation: Aug 2003
Date of revision:
Handle: RePEc:auu:dpaper:466

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References

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  1. Souleles, Nicholas S., 2000. "College tuition and household savings and consumption," Journal of Public Economics, Elsevier, vol. 77(2), pages 185-207, August.
  2. Thomas J. Kane & Cecilia Elena Rouse, 1999. "The Community College: Educating Students at the Margin between College and Work," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 63-84, Winter.
  3. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," NBER Working Papers 9055, National Bureau of Economic Research, Inc.
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  19. Martin S. Feldstein, 1975. "The Importance of Temporary Layoffs: An Empirical Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 725-745.
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Cited by:
  1. Carmichael, Fiona & Ercolani, Marco & Kang, Lili & Maimaiti, Yasheng & O'Mahony, Mary & Peng, Fei & Robinson, Catherine, 2009. "Training, education and productivity," MPRA Paper 39899, University Library of Munich, Germany.
  2. Bruce Chapman, 2005. "Income Contingent Loans for Higher Education: International Reform," CEPR Discussion Papers 491, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  3. Jones, Stephen, 2012. "The Effectiveness of Training for Displaced Workers with Long Prior Job Tenure," CLSSRN working papers clsrn_admin-2012-3, Vancouver School of Economics, revised 29 Jan 2012.

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