During the past three decades, real earnings growth has largely been stagnant. This phenomenon has caused no small amount of worry among analysts and policymakers. This stagnation has seemed particularly worrisome since it followed nearly three decades of rapid growth in real earnings after World War II (Levy, 1986). But perhaps most disconcerting of all has been the real earnings losses experienced by millions of American workers, especially those without substantial levels of formal education. (For discussions of trends in wages and earnings during the past thirty years, see Levy & Murnane, 1992.)
Among the most accepted explanations by economists for the changes observed in the structure of earnings during the past three decades is that demand is increasingly favoring more skilled workers. Beyond its credence with economists, this explanation has been compelling among policymakers as well, for whom the preferred response to declining wages at the bottom of the distribution has been to prescribe more training. Indeed, to suggest that a consensus has developed among economists, policymakers, and the public that training is more important than ever is neither brave nor novel.
While it is widely believed that training is more important than ever, we have little direct evidence that demand has shifted in favor of the more trained. One source of indirect evidence consistent with a growth in the importance of training has been the well-described increase in the value of formal schooling. During the past two decades, returns to virtually every level of formal education have risen. For example, the value of a postsecondary education over a high school degree has risen, as has the penalty for failure to complete high school.
It is not immediately clear, however, that a growing demand for formal schooling provides sufficient evidence to conclude that the demand for job training taken after entering the labor market has risen as well. Such a conclusion depends on whether or not job training is a good substitute for formal schooling. Nonetheless, the literature on training has established that receipt of training is associated with higher wages (or earnings). Researchers using a variety of nationally representative datasets, as well as company level data, have overwhelmingly found that training had a positive effect on compensation (e.g., see Bartel, 1995; Brown, 1989; Lillard & Tan, 1986; Lynch, 1992; Mincer, 1991).
While training is clearly valuable, determining whether we have observed an increase in demand for the skills workers might learn by undertaking additional job training is inherently a question about trends. If training is to be thought of as an increasingly important investment either for workers or for the nation, we must understand whether we have observed changes in the labor market consistent with an increase in demand for trained workers. Bowers and Swaim (1994) and Constantine and Neumark (1996) provide two of the few attempts to assess whether we have observed an increase in the returns to training. Using the Current Population Survey (CPS), Bowers and Swaim find evidence that the returns to some types of training increased between 1983 and 1991, while the returns to other types fell. Constantine and Neumark also use the CPS, and find no important increases in training returns over the same period.
This paper is an attempt to add to the insight provided by these two papers into the importance of training over time. I hope to assess changes in the importance of job training in the United States during the past three decades by examining a different sample of workers. Using data from the National Longitudinal Surveys (NLS), I compared the extent to which two cohorts of young men engaged in training after entering the labor market and subsequent effects on their respective employment outcomes. The NLS data allow observation of training patterns over a much longer period of time than is possible with the CPS. Moreover, the NLS data often provide richer detail about the training in which workers engage than is generally available using the CPS.
Below, I begin this monograph by describing the NLS data in more detail. I describe both the richness of the information available on the training in which workers engaged, and several important limitations of the data. I then assess the extent to which patterns of and returns to training during the past thirty years are consistent with a demand shift that favored trained workers. I do this by first examining trends in the incidence of training, and then trends in associated returns. My second aim is to provide insight into when and for whom training can improve economic outcomes. I do this by first examining returns to different patterns and types of training among all workers. My aim here is to identify the patterns of training which appear to be most advantageous to workers, and to learn whether and how such patterns are changing. I then examine the patterns and value of training received by different groups of workers. This final section seeks to identify whether workers with different levels of formal schooling are engaging in and being rewarded for training in similar ways.