Learning in the Labor Market: The Changing Importance of Education and Training After “Formal” Schooling Ends

Publication September 1999

While there is general agreement on the need to invest more in the continuing education and training of American workers, our knowledge about the importance of such investments and the relative value of various types of training is not well-formed. In this monograph, I attempt to improve our understanding of the importance of continuing education and job training. In particular, I undertake three tasks: (1) to identify trends in the patterns and value of training during the past three decades; (2) to examine whether certain types of training have become particularly valuable; and (3) to assess trends in access to training among groups of workers with different levels of education.

In doing so, I aim to determine whether the evidence is consistent with the general belief that demand changes in the labor market are increasingly rewarding training. Moreover, I hope to identify where and when training is particularly valuable, thereby helping to move the policy discussion past the ambiguous recommendation to “do more,” to a more useful prescription about what to do. My final goal is to more directly assess whether training might be used as a policy mechanism to help reverse the declining economic fortunes of workers with limited formal schooling.

To understand the changes in the patterns and value of training during the past three decades, I make use of data from the National Longitudinal Surveys from 1966 to 1981 and the comparable National Longitudinal Survey of the Labor Market Experiences of Youth from 1979 to 1994 (NLS, collectively). The NLS offers an excellent source of information for the study of training. For each cohort, detailed information is available about work experience and about the amount and types of education and training workers engaged in after completing their formal education.

Using cohorts of comparably aged white men, I examined the patterns of training in which they engaged, and the effects of such training on the wages they earned and the hours they worked during the last year of available data. I estimated wage and hours effects of training using standard regression methods. I also introduced a number of controls for the possibility that training is associated with hard-to-measure attributes of workers and their jobs.

There are several principal findings:
• It is clear that training is associated with higher wages. On average, for both cohorts, participation in any form of training during the first decade and a half of one’s career resulted in wage gains on the order of 7 to 10%. This increase is comparable to the earnings premium associated with an additional year or two of formal schooling.
• I find no evidence consistent with a substantial increase in employers’ demand for trained workers during the past thirty years. The economic returns to training are high for a cohort of young men entering the labor market in the 1980s, and they were equally high for the cohort which entered in the late 1960s. At the same time, the amount of training in which workers engaged fell slightly.
• The pattern of training associated with the highest returns is one of frequent, short-term training episodes. Participation in a long-term training program (one lasting more than one month) does not appear to provide any wage premium over and above shorter-term training. However, participation in multiple episodes of training has a high pay-off compared to participation in only one episode.
• For both cohorts, workers with a high school education or less who participated in training earned returns which were at least as high as, and often higher than, their more educated peers.
• Between cohorts, there was a shift in incidence of training so that among the later cohort, participation in training among high school graduates and dropouts lagged substantially behind the participation of those with at least some postsecondary education.

Together, these findings provide a number of lessons. First, it is clear that the learning in which workers engage once they leave school has an important effect on their earnings. Moreover, the finding that short-term training is as valuable as long-term training suggests that any public or private efforts to improve workers’ skills and wages need not involve investment in long-term training. So, there is hope that training investments will not require major commitments of time, and perhaps money, in order to pay off. Rather than encouraging long episodes, a sound training investment policy should encourage frequent training throughout workers’ careers.

It is also clear that training can be regarded as a useful policy instrument for those interested in improving the economic prospects of less-educated workers. Workers with a high school education or less who participated in training earned returns which were at least as high as their more educated peers. However, a growing bifurcation in access to training by education level suggests that there may be some serious obstacles which policies that hope to encourage training among workers without a postsecondary education will have to address.

Because training is indeed a useful mechanism for improving workers’ wages, the apparent cleavage between those with and without some postsecondary education in access to training may be an inauspicious sign of future wage trends. Workers without postsecondary schooling have seen their wages fall in both real and relative terms during the past three decades. If such workers are increasingly shut-out of, or avoiding, valuable episodes of job training after they enter the labor market, these patterns are likely to be exacerbated.

Marcotte, D. E. (1999, September). Learning in the labor market: The changing importance of education and training after “formal” schooling ends. Berkeley, CA: National Center for Research in Vocational Education.

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