Abstract
Harley Frazis and Mark A. Loewenstein (1999) "Reexamining the
Returns to Training: Functional Form, Magnitude, and Interpretation."
This paper examines the appropriate functional form and the size of the wage returns to
training. In both the National Longitudinal Survey of Youth (NLSY) and Employer
Opportunity Pilot Project (EOPP) datasets a log specification fits best. In the NLSY, the
full effect of training occurs with a lag as long as two years, training on previous jobs
is a substitute for training on the current job, and the return to training declines with
labor market experience. The EOPP data indicate that formal and informal training are
perfect substitutes; however, an hour of formal training has a much greater effect on
wages than does an hour of informal training.
We find very large returns to formal training in both the NLSY and EOPP. The mixed
continuous-discrete nature of the training variable means that measurement error can cause
estimates of the effects of short spells of training to be biased upward, but we
demonstrate that the maximum upward bias in estimated returns at the geometric mean is
minimal. Heterogeneity in returns is a more plausible explanation of the high estimated
return to training; in the EOPP data, the return to training is significantly higher in
more complex jobs. With unobserved heterogeneity in returns, our estimates can be regarded
as the return to training for the trained, but cannot be extrapolated to the untrained.
Last Modified Date: July 19, 2008
|