Job Training: Costs, Returns, and Wage Profiles

Abstract

Using information on time costs of training and gains in wages attributable to training, I computed rates of return on training investments. The upper range of estimates based on several data sets generally exceeds the magnitudes of rates of return usually observed for schooling investments. It is not clear, however, that the difference represents underinvestment in job training.

Two methods were used to estimate total annual costs of job training in the U.S. economy, for 1958, 1976, and 1987. The “direct” calculation uses information on time spent in training and on wages. For 1976, costs so calculated amounted to 11.2% of Total Employee Compensation, which is about half of the costs of school education. In the “indirect” method, training costs were estimated from wage functions fitted to PSID data. In 1976 the direct estimate amounted to between 65% and 75% of the indirect estimate based on the wage profile. This result is consistent with a human capital interpretation of wage profiles.

The estimates indicate a slower growth of training than of school expenditures in the 1970’s. Substitution of schooling for job training is a likely cause.

This report is based on work sponsored by the National Science Foundation, grant SES-8921357, and in part by the Office of Educational Research and Improvement, U.S. Department of Education.

I am grateful to Lalith Munasinghe for research assistance, and to David Stern for editorial comments.