Working Paper: NBER ID: w9083
Authors: James J. Heckman; Lance Lochner; Ricardo Cossa
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.
Keywords: No keywords provided
JEL Codes: H24; J24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage subsidies (J38) | skill formation (J24) |
| EITC (H26) | skill formation (J24) |
| EITC (H26) | long-term wages (J31) |
| wage subsidies (J38) | labor supply (J20) |
| labor supply (J20) | skill formation (J24) |
| EITC increases hours worked for some workers (H31) | skill formation (J24) |
| EITC reduces hours worked for others (H31) | skill formation (J24) |