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

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Author Info
James Heckman
Lance Lochner
Ricardo Cossa

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9083.

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Date of creation: Jul 2002
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Handle: RePEc:nbr:nberwo:9083

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Find related papers by JEL classification:
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Martin Browning & Lars Peter Hansen & James J. Heckman, 1999. "Micro Data and General Equilibrium Models," Discussion Papers 99-10, University of Copenhagen. Department of Economics.
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  2. Weiss, Yoram, 1972. "On the Optimal Lifetime Pattern of Labour Supply," Economic Journal, Royal Economic Society, vol. 82(328), pages 1293-1315, December. [Downloadable!] (restricted)
  3. Killingsworth, Mark R, 1982. ""Learning by Doing" and "Investment in Training": A Synthesis of Two "Rival" Models of the Life Cycle," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 263-71, April. [Downloadable!] (restricted)
  4. Shaw, Kathryn L, 1989. "Life-Cycle Labor Supply with Human Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 431-56, May. [Downloadable!] (restricted)
  5. Altug, Sumru & Miller, Robert A, 1998. "The Effect of Work Experience on Female Wages and Labour Supply," Review of Economic Studies, Blackwell Publishing, vol. 65(1), pages 45-85, January. [Downloadable!] (restricted)
  6. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August. [Downloadable!] (restricted)
  7. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May. [Downloadable!] (restricted)
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  8. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352. [Downloadable!] (restricted)
  9. James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents," NBER Working Papers 6384, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ghazala Azmat, 2006. "The Incidence of an Earned Income Tax Credit: Evaluating the Impact on Wages in the UK," CEP Discussion Papers dp0724, Centre for Economic Performance, LSE. [Downloadable!]
  2. Bovenberg, A.L., 2003. "Tax policy and labor market performance," Discussion Paper 90, Tilburg University, Center for Economic Research. [Downloadable!]
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  3. Gabriele, CARDULLO & Bruno, VANDERLINDEN, 2006. "Employment subsidies and substitutable skills : An equilibrium matching approach," Discussion Papers (ECON - Département des Sciences Economiques) 2006010, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
  4. Robert Gibbons & Michael Waldman, 2003. "Enriching a Theory of Wage and Promotion Dynamics Inside Firms," NBER Working Papers 9849, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Jerome Adda & Christian Dustmann & Costas Meghir & Jean-Marc Robin, 2006. "Career progression and formal versus on-the-job training," IFS Working Papers W06/16, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  6. repec:bep:eapadv:v:2:y:2002:i:1:p:1048-1048 is not listed on IDEAS
  7. Connolly, Helen & Gottschalk, Peter, 2004. "Do Earnings Subsidies Affect Job Choice?," IZA Discussion Papers 1322, Institute for the Study of Labor (IZA). [Downloadable!]
  8. Costas Meghir, 2006. "Dynamic models for policy evaluation," IFS Working Papers W06/08, Institute for Fiscal Studies. [Downloadable!]
  9. Frank Oskamp & Dennis J. Snower, 2006. "The Effect of Low-Wage Subsidies on Skills and Employment," Kiel Working Papers 1292, Kiel Institute for the World Economy. [Downloadable!]
  10. Gueorgui Kambourov & Iourii Manovskii, 2000. "Occupational Mobility and Wage Inequality, Second Version," PIER Working Paper Archive 04-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 15 Jun 2004. [Downloadable!]
  11. Tito Boeri, 2005. "An Activating Social Security System," De Economist, Springer, vol. 153(4), pages 375-397, December. [Downloadable!] (restricted)
  12. Kambourov, Gueorgui & Manovskii, Iourii, 2004. "Occupational Mobility and Wage Inequality," IZA Discussion Papers 1189, Institute for the Study of Labor (IZA). [Downloadable!]
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