The Labor Market Returns to Customized Job Training

• In Event: Approaches to Ensuring Wage Growth and Economic Mobility

Abstract

Economic theory dating back to Becker (1962) predicts that employers should pay for training workers in specific, non-transferable skills while governments should fund more general training. Customized job training (CJT) programs, which exist in many U.S. states, defy this logic by using public subsidies to teach workers a range of skills, including those that are firm-specific. Are governments naive or mistakenly subsidizing training that firms would pay for on their own, or does CJT generate benefits that justify public investment? I answer these questions using unique hand-collected data from Tennessee on firms' applications and trainees' enrollment linked with rich administrative education and earnings data. I exploit quasi-random rationing among equally propitious firms and equally eligible prospective trainees. My results indicate that CJT generates persistent earnings increases of 3%, comparable to the returns from an additional year of work experience. To explain these findings, I classify the skills taught in each program by mapping program descriptions in firms' applications to O*NET. Despite the fact that CJT programs include training in many transferable skills across industries, occupations, and more generally, CJT yields benefits to workers and the government through higher earnings that more than offset the cost of training to both firms and the government, yielding an exceptionally high marginal value of public funds relative to other job training programs.

Author

• Natalie Millar, Stanford University
  Presenting Author