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Interpreting the Evidence on Life Cycle Skill Formation

Flavio Cunha, James Heckman, Lance Lochner and Dimitriy V. Masterov ()
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Dimitriy V. Masterov: University of Michigan

No 1675, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: government policy; education; skill formation; educational finance (search for similar items in EconPapers)
JEL-codes: I21 I22 I28 J31 (search for similar items in EconPapers)
Pages: 165 pages
Date: 2005-07
New Economics Papers: this item is included in nep-edu, nep-lab, nep-ltv and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (110)

Published - published in: E. Hanushek; F. Welch (eds.): Handbook of the Economics of Education, North Holland: Amsterdam, 2006, 697-812

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Chapter: Interpreting the Evidence on Life Cycle Skill Formation (2006) Downloads
Working Paper: Interpreting the Evidence on Life Cycle Skill Formation (2005) Downloads
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