IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v96y2006i3p832-846.html

Training and Lifetime Income

Author

Listed:
  • Burhanettin Kuruscu

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 1 percent. 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 nonparametric 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 where he does not make any investments. (JEL: E24, J24, J31)

Suggested Citation

  • Burhanettin Kuruscu, 2006. "Training and Lifetime Income," American Economic Review, American Economic Association, vol. 96(3), pages 832-846, June.
    • Handle: RePEc:aea:aecrev:v:96:y:2006:i:3:p:832-846
    Note: DOI: 10.1257/aer.96.3.832
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.96.3.832
    Download Restriction: no
    File URL: http://www.aeaweb.org/aer/data/june06_data_20030612.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    References listed on IDEAS

    as
    1. Heckman, James J & Lochner, Lance & Taber, Christopher, 1998. "Tax Policy and Human-Capital Formation," American Economic Review, American Economic Association, vol. 88(2), pages 293-297, May.
    2. Browning, Martin & Hansen, Lars Peter & Heckman, James J., 1999. "Micro data and general equilibrium models," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 8, pages 543-633, Elsevier.
    3. Haley, William J, 1976. "Estimation of the Earnings Profile from Optimal Human Capital Accumulation," Econometrica, Econometric Society, vol. 44(6), pages 1223-1238, November.
    4. Heckman, James J & Lochner, Lance & Taber, Christopher, 1998. "General-Equilibrium Treatment Effects: A Study of Tuition Policy," American Economic Review, American Economic Association, vol. 88(2), pages 381-386, May.
    5. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
    6. Storesletten, Kjetil & Violante, Giovanni & Heathcote, Jonathan, 2004. "The Cross-Sectional Implications of Rising Wage Inequality in the United States," CEPR Discussion Papers 4296, C.E.P.R. Discussion Papers.
    7. Ryder, Harl E & Stafford, Frank P & Stephan, Paula E, 1976. "Labor, Leisure and Training over the Life Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(3), pages 651-674, October.
    8. Sherwin Rosen, 1972. "Learning and Experience in the Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 7(3), pages 326-342.
    9. Blinder, Alan S & Weiss, Yoram, 1976. "Human Capital and Labor Supply: A Synthesis," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 449-472, June.
    10. Lynch, Lisa M, 1992. "Private-Sector Training and the Earnings of Young Workers," American Economic Review, American Economic Association, vol. 82(1), pages 299-312, March.
    11. 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 11-44, August.
    12. Mark R. Killingsworth, 1982. ""Learning by Doing" and "Investment in Training": A Synthesis of Two "Rival" Models of the Life Cycle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(2), pages 263-271.
    13. Fatih Guvenen, 2007. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?," American Economic Review, American Economic Association, vol. 97(3), pages 687-712, June.
    14. Rosen, Sherwin, 1976. "A Theory of Life Earnings," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 45-67, August.
    15. Huggett, Mark & Ventura, Gustavo & Yaron, Amir, 2006. "Human capital and earnings distribution dynamics," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 265-290, March.
    16. 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(4), pages 352-352.
    17. Brown, James N, 1989. "Why Do Wages Increase with Tenure? On-the-Job Training and Life-Cycle Wage Growth Observed within Firms," American Economic Review, American Economic Association, vol. 79(5), pages 971-991, December.
    18. Brown, Charles, 1976. "A Model of Optimal Human-Capital Accumulation and the Wages of Young High School Graduates," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 299-316, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Elisa Keller, 2013. "Occupational Complexity, Experience, and the Gender Wage Gap," 2013 Meeting Papers 348, Society for Economic Dynamics.
    2. Qian, Nancy & Lagakos, David & Moll, Benjamin & Porzio, Tommaso, 2012. "Experience Matters: Human Capital and Development Accounting," CEPR Discussion Papers 9253, C.E.P.R. Discussion Papers.
    3. Rupert, Peter & Zanella, Giulio, 2015. "Revisiting wage, earnings, and hours profiles," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 114-130.
    4. Nirav Mehta, 2025. "A Partial Identification Approach to Identifying the Determinants of Human Capital Accumulation: An Application to Teachers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(6), pages 639-654, September.
    5. Johanna Wallenius, 2011. "Human Capital Accumulation and the Intertemporal Elasticity of Substitution of Labor: How Large is the Bias?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 577-591, October.
    6. Görlitz, Katja & Tamm, Marcus, 2015. "The pecuniary and non-pecuniary returns to voucher-financed training," Discussion Papers 2015/11, Free University Berlin, School of Business & Economics.
    7. D'Haultfoeuille, Xavier & Maurel, Arnaud, 2009. "Inference on a Generalized Roy Model, with an Application to Schooling Decisions in France," IZA Discussion Papers 4606, Institute of Labor Economics (IZA).
    8. William Peterman, 2016. "The effect of endogenous human capital accumulation on optimal taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 46-71, July.
    9. Fatih Guvenen & Burhanettin Kuruscu, 2012. "Understanding The Evolution Of The Us Wage Distribution: A Theoretical Analysis," Journal of the European Economic Association, European Economic Association, vol. 10(3), pages 482-517, May.
    10. Blandin, Adam & Peterman, William B., 2019. "Taxing capital? The importance of how human capital is accumulated," European Economic Review, Elsevier, vol. 119(C), pages 482-508.
    11. Fatih Guvenen & Burhanettin Kuruscu, 2010. "A Quantitative Analysis of the Evolution of the US Wage Distribution, 1970–2000," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 227-276, National Bureau of Economic Research, Inc.
    12. Fatih Guvenen & Burhanettin Kurusçu, 2006. "Ben-Porath meets skill-biased technical change: a theoretical analysis of rising inequality," Discussion Paper / Institute for Empirical Macroeconomics 144, Federal Reserve Bank of Minneapolis.
    13. Teresa Backhaus, 2022. "Training in Late Careers - A Structural Approach," CRC TR 224 Discussion Paper Series crctr224_2022_382, University of Bonn and University of Mannheim, Germany.
    14. Audra J. Bowlus & Chris Robinson, 2012. "Human Capital Prices, Productivity, and Growth," American Economic Review, American Economic Association, vol. 102(7), pages 3483-3515, December.
    15. Singh, Vikkram & Shirazi, Homayoun & Turetken, Jessica, 2022. "COVID-19 and gender disparities: Labour market outcomes," Research in Economics, Elsevier, vol. 76(3), pages 206-217.
    16. Blandin, Adam, 2018. "Learning by Doing and Ben-Porath: Life-cycle Predictions and Policy Implications," Journal of Economic Dynamics and Control, Elsevier, vol. 90(C), pages 220-235.
    17. Fatih Guvenen & Burhanettin Kuruscu, 2006. "Understanding Wage Inequality: Ben-Porath Meets Skill-Biased Technical Change," 2006 Meeting Papers 881, Society for Economic Dynamics.
    18. Carl Sanders & Christopher Taber, 2012. "Life-Cycle Wage Growth and Heterogeneous Human Capital," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 399-425, July.
    19. Mark Huggett & Gustavo Ventura & Amir Yaron, 2011. "Sources of Lifetime Inequality," American Economic Review, American Economic Association, vol. 101(7), pages 2923-2954, December.
    20. Audra Bowlus & Chris Robinson, 2020. "The evolution of the human capital of women," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 12-42, February.
    21. Görlitz, Katja & Tamm, Marcus, 2016. "The returns to voucher-financed training on wages, employment and job tasks," Economics of Education Review, Elsevier, vol. 52(C), pages 51-62.
    22. Keller, Elisa, 2014. "The slowdown in American educational attainment," Journal of Economic Dynamics and Control, Elsevier, vol. 46(C), pages 252-270.
    23. Masaya Nishihata, 2025. "The Long Shadow of Superstars: Effects on Opportunities, Careers, and Team Production," Papers 2511.07218, arXiv.org.
    24. Katja Görlitz & Marcus Tamm, 2015. "The Pecuniary and Non-pecuniary Returns to Voucher-financed Training," Ruhr Economic Papers 0553, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    25. Backhaus, Teresa, 2025. "Training in late careers — A structural approach," Labour Economics, Elsevier, vol. 93(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carl Sanders & Christopher Taber, 2012. "Life-Cycle Wage Growth and Heterogeneous Human Capital," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 399-425, July.
    2. Nirav Mehta, 2025. "A Partial Identification Approach to Identifying the Determinants of Human Capital Accumulation: An Application to Teachers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(6), pages 639-654, September.
    3. Huggett, Mark & Ventura, Gustavo & Yaron, Amir, 2006. "Human capital and earnings distribution dynamics," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 265-290, March.
    4. Mark Huggett & Gustavo Ventura & Amir Yaron, 2011. "Sources of Lifetime Inequality," American Economic Review, American Economic Association, vol. 101(7), pages 2923-2954, December.
    5. Huoying Wu, 2007. "Can The Human Capital Approach Explain Life‐Cycle Wage Differentials Between Races And Sexes?," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 24-39, January.
    6. James Heckman & Lance Lochner & Ricardo Cossa, 2002. "Learning-By-Doing Vs. On-the-Job Training: Using Variation Induced by the EITC to Distinguish Between Models of Skill Formation," NBER Working Papers 9083, National Bureau of Economic Research, Inc.
    7. Fatih Guvenen & Burhanettin Kuruscu, 2010. "A Quantitative Analysis of the Evolution of the US Wage Distribution, 1970–2000," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 227-276, National Bureau of Economic Research, Inc.
    8. Blandin, Adam, 2018. "Learning by Doing and Ben-Porath: Life-cycle Predictions and Policy Implications," Journal of Economic Dynamics and Control, Elsevier, vol. 90(C), pages 220-235.
    9. Hansen, Gary D. & Imrohoroglu, Selahattin, 2009. "Business cycle fluctuations and the life cycle: How important is on-the-job skill accumulation?," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2293-2309, November.
    10. repec:eee:labchp:v:1:y:1986:i:c:p:603-640 is not listed on IDEAS
    11. Derek Neal & Sherwin Rosen, 1998. "Theories of the Distribution of Labor Earnings," NBER Working Papers 6378, National Bureau of Economic Research, Inc.
    12. Driffill, E John & Rosen, Harvey S, 1983. "Taxation and Excess Burden: A Life Cycle Perspective," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 671-683, October.
    13. Weinberg, Bruce A., 2004. "Experience and Technology Adoption," IZA Discussion Papers 1051, Institute of Labor Economics (IZA).
    14. Magnac, Thierry, 2023. "Capital humain et recherche d'emploi: un mariage heureux - Human Capital and Search Models: A Happy Match," TSE Working Papers 23-1489, Toulouse School of Economics (TSE).
    15. Thierry Magnac, 2024. "Human Capital and Search Models: A Happy Match," Revue économique, Presses de Sciences-Po, vol. 75(1), pages 11-29.
    16. James J. Heckman, 2005. "Micro Data, Heterogeneity and the Evaluation of Public Policy Part 2," The American Economist, Sage Publications, vol. 49(1), pages 16-44, March.
    17. Chaitali Sinha, 2014. "Human Capital and Public Policy," South Asian Journal of Macroeconomics and Public Finance, , vol. 3(1), pages 79-125, June.
    18. Kong, Y.-C. & Ravikumar, B. & Vandenbroucke, G., 2018. "Explaining cross-cohort differences in life-cycle earnings," European Economic Review, Elsevier, vol. 107(C), pages 157-184.
    19. Vandenbroucke, Guillaume, 2021. "The baby boomers and the productivity slowdown," European Economic Review, Elsevier, vol. 132(C).
    20. Keller, Elisa, 2014. "The slowdown in American educational attainment," Journal of Economic Dynamics and Control, Elsevier, vol. 46(C), pages 252-270.
    21. Alejandro Badel & Mark Huggett, 2014. "Interpreting Life Cycle Inequality Patterns as an Efficient Allocation: Mission Impossible?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 613-629, October.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:96:y:2006:i:3:p:832-846. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.