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

James Heckman, Lance Lochner and Ricardo Cossa

No 9083, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H24 J24 (search for similar items in EconPapers)
Date: 2002-07
New Economics Papers: this item is included in nep-lab, nep-ltv and nep-pbe
Note: LS PE
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Citations: View citations in EconPapers (53)

Published as Phelps. E. (ed.) Designing Inclusion: Tools to Raise Low-end Pay and Employment in Private Enterprise. Cambridge: Cambridge University Press, 2003.

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