• Trends in Training Incidence
• Trends in the Wage Effect of Training
• Trends in the Effect of Training on Hours Worked
• Incidence and Returns by Education Group

RESULTS

Trends in Training Incidence

The patterns of training reported by the NLS-OC and NLSY cohorts are summarized in Table 2. During the course of their interviews, 68.5% of NLS-OC cohort members reported participating in a training course or educational program other than regular schooling at least once. Among the NLSY cohort, 63.8% reported participation in training at some time. Clearly, for both cohorts, at least some level of participation in training is common.

Table 2
Incidence of Training by Cohort

Moreover, long-term training is common for each cohort. However, among the NLSY cohort, the training in which workers reported engaging appears to be shorter than among their counterparts in the earlier cohort. In the NLS-OC cohort, 51.4% reported participation in a training program that lasted at least one month, while 17.0% reported participating in a shorter program. Only 34.8% of the NLSY cohort reported receiving training lasting more than one month, while 29.0% reported training of a shorter duration. [7]

Not only was there a shift toward short-term training, but there was also a mild decline in the frequency with which workers reported receiving training between cohorts. The number of years in which respondents reported training declined from an average of 1.91 years to an average of 1.79 years. Combined with the decline in incidence, the fall in frequency and duration meant that the second cohort engaged in less training than the first.

As a part of the overall decline in the incidence of long-term training between cohorts, among those receiving long-term training there was also an interesting shift in the sources of such training. [8] While the proportion of young men participating in long-term training fell by about one-third between cohorts, there was a particularly large drop in participation in such training provided at schools (e.g., business or community college, vocational/technical institute, barber or beauty school, or flight school). The proportion participating in company-provided long-term training fell hardly at all, while at the same time, the proportion engaged in long-term training at schools fell by about one-half.

Trends in the Wage Effect of Training

While the incidence of training differed somewhat from the first cohort to the second, the economic returns to such training remained largely stable. In Table 3, the results of a series of models that estimate the effects of past episodes of training on the real hourly wages of the first cohort in 1981 and of the second cohort in 1994 are summarized. The first two columns in the table present the marginal effects of experience and educational status on wages for each cohort. Each subsequent pair of columns presents the results of models that modify the basic specification to include alternative characterizations of the relationship between training and wages.

Wages measured in log form

All models include controls for marital status, SMSA residence, residence in the South, union status, FYFT status,
veteran status (and combat experience for the Original Cohort), and a set of industry of employment dummies.

* Significant at 5% level

The second set of columns in Table 3 replicates the first model, but includes an indicator of whether or not a worker ever participated in training. [9] For the first cohort, training resulted in an average wage premium of 7.1%. The training premium for the second cohort was 10.5%. While the point estimate of training returns was higher for the second cohort, the difference was not statistically significant. So, while it can be concluded that for each cohort training has a significant positive effect on wages, the hypothesis that training returns were equal for the two cohorts cannot be rejected.

Besides the stability of the estimated training returns between the two cohorts, two things are noteworthy. The first is the size of the training return. A 7-10% return on training is large, and suggests that participating in training once in the labor market pays off well. This estimate of the returns to training suggests that there might be reason for optimism that encouraging training might improve the earnings of workers who are falling behind. Second, including a measure of training marginally reduces the effect of education on earnings. This suggests that part of the observed return to formal schooling is due to higher incidence of training among better-educated workers.

The results presented in Table 3 were obtained while employing standard human capital and job controls. It may be the case, however, that workers who engage in training are different from those who do not in other ways not measured here. For example, unusually able or ambitious workers may be given training by employers or seek training on their own. Such characteristics may themselves affect wages. If not properly measured, their influence may be confounded with estimates of training returns. I examined the effects of such potential heterogeneity in different ways. In no case did I find that the estimated training returns presented in Table 3 were influenced by such heterogeneity in any important way. Because estimated training returns were robust, I present only the OLS results here for the sake of clarity. In Appendix 2, I discuss the issue of heterogeneity further and present evidence of its importance.

The final six columns in Table 3 present the results of three different ways of characterizing the relationship between training and wages. The first two attempt to measure the effect of duration and frequency of training. The first of these models has the basic controls for human capital and includes two mutually exclusive measures of training: (1) an indicator of whether a worker participated in training which lasted more than one month, and (2) an indicator of whether a worker participated in training, but never in a time period of more than a month. Interestingly, for neither cohort did longer-term training result in better wage outcomes. This could be due to the possibility that longer-term training may be remedial, or that there are diminishing returns to training. As with the earlier results, there is no evidence that the returns to training increased from one cohort to the next.

The next model includes a series of variables that measure the number of years in which a worker reports participating in training. For both cohorts, wages rise most for workers who engaged in training during more than one year. For the first cohort, wages for workers who participated in training during one year are not significantly higher than the wages of those who did not participate in training at all. However, for workers who participated in training during two or three years, wages were 6.8% higher than those with no training. The earnings of those participating in training during four or more years were 16.4% higher than those without training. A similar pattern of very high returns for those who participate in the most frequent training is observed among the second cohort.

One explanation for this pattern of higher returns among those who participate in training often suggests that the observed association between earnings and frequent training may have nothing to do with the training itself. Instead, it may be due to the possibility that workers who receive frequent training are receiving frequent promotions. So, some workers may be put on a "management track," and their frequent training could be a consequence of their new position and pay, rather than an antecedent to promotion.

Because I was able to observe individuals' work histories, I tested the hypothesis that promotion, rather than frequent job training, accounts for this pattern of earnings. I found that controlling for the frequency of promotion has negligible effects on the estimated returns for job training in general or for frequent job training. I interpret these results as confirmation that frequent job training has a high return, independent of any patterns of intra-firm job changes that may be associated with such training.

The final model attempts to measure the relative impact of different sources of training on earnings. Because of data limitations, I was only able to compare the source of training for workers reporting training of more than one month in duration. Consistent with the results of Model 3, for both cohorts, short-term training has a return at least as high as long-term training, regardless of the source of long-term training. Among those who participated in long-term training, training received at a worker's company had the highest return.

Long-term training outside of the workplace appears to have had no significant wage effect. Moreover, these patterns held for both cohorts. Such training includes training received at schools such as business or community colleges, vocational/technical institutes, barber or beauty schools, or flight schools. It also includes training reported at other sources. This finding does not mean that training at sources other than workers' places of employment is not valuable. Because of data limitations, I can say nothing of the relative value of training provided from such sources which is short in duration; however, it does appear that longer-term training provided outside the workplace did not generate significantly higher wages.

Together, these results provide an interesting picture of the effect of training on workers' wages. The first lesson is that, on average, training matters quite a bit. The second lesson is that workers who receive training that is long in duration do not fare better than those who receive shorter training. Rather, it is frequency, not the duration of any one training spell that most determines the economic returns to training. Finally, these patterns have not changed between cohorts.

Trends in the Effect of Training on Hours Worked

Beyond an hourly wage premium, training may also influence workers' well-being by affecting the number of hours worked. Training might have an hours effect for a variety of reasons. Chief among these is that by increasing productivity, we anticipate training to increase demand by firms for workers' services. For any individual worker who has received training, this could mean an increase in the number of hours worked. Additionally, by increasing productivity and wages, training may generate a substitution effect that leads some workers to work longer hours. Moreover, workers may work additional hours so as to increase the period over which they reap the benefits of training investments.

In order to examine the effects of training on hours, I estimated a series of hours equations based on models similar to those presented in Table 3. That is, I estimated models in which I first examine the effect of a yes/no indicator of any training on annual hours worked for the original cohort in 1981 and the NLSY cohort in 1994. I then sequentially expanded this model to examine the effect of training intensity, frequency, and source on annual hours. I present the results of the estimation of these models of annual hours in Table 4.

The principal conclusion to be drawn from Table 4, in comparison with Table 3, is that the effect of training on employment outcomes primarily operates through the wage rate, rather than through hours of employment. The marginal effect of any training on hours is similar for the two cohorts--69.5 for the original cohort and 63.7 for the NLSY cohort. Only for the NLSY cohort, however, is this significant. For the NLSY cohort, this suggests that participation in any training leads to an increase in annual hours worked by 2.8%.

The models relating short- and long-term training to annual hours, and training frequency to annual hours suggest effects similar to those of training on hourly wages, but more muted. The only instance where the hours models suggest a relationship which is sizable and notable in its difference from the earlier wage models appears in the model relating training to hours, by source of training (Model 5). For both the original and the NLSY cohorts, it appears that long-term training received at a school had a large and significant effect on annual hours.

School-provided long-term training increased annual hours by 94.9 for the original cohort and by 109.4 hours for the NLSY cohort. This effect amounted to about a four to five percent increase in hours worked for those receiving such training. No other sort of training affected hours similarly. This pattern differs importantly from the effect of different sources of training on wages. Remember from Table 3 that company-provided long-term training (and short-term training, in general) had significant effects on wages, while school training did not. The results in Table 4 suggest that school-provided long-term training does, however, have effects on employment outcomes via hours worked. [10]

All models include controls for marital status, SMSA residence, residence in the South, union status, FYFT status,
veteran status (and combat experience for the Original Cohort), and a set of industry of employment dummies.

* Significant at 5% level

Incidence and Returns by Education Group

It is clear that participation in job training after entering the labor market is associated with better employment outcomes on average. Training has a substantial effect on hourly wages, and a small effect on hours worked. However, there do not appear to be any systematic changes in the amount of training or the returns to training over the past thirty years which are consistent with any substantial increase in demand. As such, while it might be reasonable to conclude that encouraging training can have positive effects on economic outcomes, it does not appear that relatively stagnant earnings growth can be attributed to an underinvestment in increasingly important skills associated with training.

Nonetheless, the question remains open about whether the declining economic fortunes of workers with limited levels of formal schooling is partly due to a mal-distribution of valuable training to different groups of workers. I next examined whether the trends in overall training incidence and returns described above mask any important differences in the patterns and value of training various groups receive.

In Figure 1, estimates of the proportion of each cohort reporting participation in training by level of formal education are presented. Each bar provides information about the proportion of workers with various levels of education in each cohort participating in long- and short-term training. Two things are notable. First, for each education group, there was a significant drop in the proportion participating in long-term training. So, for each education group, regardless of any changes in the incidence of any training, there was a sizable shift toward less intensive training over time.

Second, for all workers except those with a high school education, there was no change in the incidence of training between cohorts. However, among those with a high school education, there was an important decline in the proportion of workers participating in training between cohorts. Interestingly, for the original cohort, access to training among high school educated workers looked much like the access enjoyed by their more educated peers. For that cohort, a secondary or postsecondary education was associated with fairly high and virtually identical rates of training. The only impact of education on training appears to have been due to the much lower rate at which high school dropouts participated in training.

Figure 1
Training Incidence by Education Level:
NLS-OC (column 1) and NLSY (column 2)

Among the second cohort, patterns of training by education had changed slightly. For the later cohort, training incidence among high school graduates started looking less like the incidence of those with some postsecondary schooling and more like high school dropouts. To be sure, high school graduates continued to participate in training at a greater rate than dropouts; however, it appears that among the later cohort, postsecondary schooling serves as a more important key for access to training.

It appears that postsecondary schooling serves as a more important determinant of another dimension of training among the second cohort. Specifically, between cohorts there was a relative shift in incidence of frequent training that favored workers with at least some postsecondary education. Figure 2 illustrates this shift by separating workers with different levels of formal schooling who ever received training into three different groups: (1) those who received training only once; (2) those who received training two to three times; and (3) those who received training four or more times. The first two pairs of charts represent patterns of training frequency among workers in the first and second cohort without any postsecondary schooling. For these groups there was a small shift away from participation in training at least four times. For those with a high school education, there was also a drop in the proportion participating in training during two or three different years. So, by the second cohort, there had been a sizable increase in the likelihood that high school graduates who participated in training had engaged in such training only once. Combined with the above finding that overall and long-term training incidence declined markedly for high school graduates, this decline in frequency suggests that high school graduates in the second cohort engaged in significantly less training than did their peers in the earlier cohort.

By itself, this decline in training incidence and frequency among those with no postsecondary education may have had an effect on their relative earnings during the past several decades. To better understand changes in how relative wage outcomes have changed over time, however, it is also important to examine relative returns to training over time. In Table 5, estimates of the marginal effects of any training on real hourly wages for members of each cohort, estimated separately for those with and those without any postsecondary education, are presented. Estimates of both the wage effect of any training and the effects of participation in training during only one year, participation in training in two to three years, and participation in training in four or more years, are also included.

Figure 2
Number of Years Trained Workers Report Participation in Training: By Education

Table 5
Returns to Job Training by Cohort and Education Level

Two interesting results are apparent in Table 5. The first is that training returns are higher for those with no postsecondary education. One interpretation of this is that workers are not being excluded from valuable training experiences because of a lack of formal schooling. [11] This suggests that less educated workers are able to use training as a substitute for formal education. This is a lesson that provides hope that training can reasonably be used as a mechanism for improving the economic outcomes of those with only a high school education or less.

The second finding apparent in Table 5 is that there was little change between cohorts. For both cohorts, training paid off for workers both with and without a postsecondary education. While there were mild increases in the average returns for training among both groups, these changes were not statistically significant. Also, for both cohorts, frequent participation in training pays off particularly well.

[7] Here and throughout the paper I count individuals as having participated in long-term training if they ever participated in a training period of four weeks or more, even if they also participated in training that was shorter in duration at another time. I count individuals as participating in short-term training if they engaged in training lasting less than four weeks, at least once, and never engaged in training in a time period of more than four weeks.

[8] During some years, the NLSY asked detailed questions about training only for those reporting a duration of more than one month. In order to ensure comparability across years and cohorts, I restricted my analysis of the source of training to those who engaged in a spell of more than one month.

[9] For the purposes of estimating wage models, I employed measures of individuals' training histories for all years prior to the year for which I examined earnings. That is, I omitted from consideration any training in which workers engaged in the year during which wages are measured.

[10] For the same reasons it affects wages and hours, training might also affect labor force participation. If so, the marginal effect of training on wages and hours estimated here may be biased. To investigate this, I employed a series of two-stage Tobit models and estimated the marginal effect of training on wages, conditional on observing wages. I found no important differences between these conditional effects and the unconditional wage effects of training reported in Table 3. Because the two-stage models do not add new insight into the effect of training on employment outcomes here, I present only the unconditional results here to conserve space.

[11] Another interpretation is that any heterogeneity problem associated with determining who participated in training is particularly severe among workers without postsecondary education. That is, it may be that among less educated workers, only the most able or ambitious participate in training. If so, a relatively high level of such unobserved traits among less educated workers who get training could account for this relatively high wage premium associated with training among workers without postsecondary schooling. I examine this possibility by estimating group-specific models, while controlling for a measure of ability: Armed Forces Qualifying Test scores (see Appendix 1 for discussion). The results of that estimation also suggest that returns to training for less educated workers exceed the returns of their more educated peers.