Career Progression and Formal versus on the Job Training Public Policy and life-cycle decisions

Career Progression and Formal versus on the Job Training Public policy and life-cycle decisions C Meghir UCL and ifs with J Adda, C. Dustmann, J.-M. Robin Presentationprepared for WIse conference in XIAMEN Go to data

Career Progression and Formal versus on the Job Training Public Policy and life-cycle decisions C. Meghir UCL and IFS with J. Adda, C. Dustmann, J.-M. Robin Presentation prepared for WISE conference in XIAMEN Go to data

Introduction Empirical Public finance and Dynamic models context requires inputs from empirically estimated St Designing a tax and welfare benefit system in a 2nd be parameters The literature tends to focus on estimation of commodity and labour supply elasticities, which are the basic variables that respond to taxes and benefits However, individuals are likely to change behaviour in a number of different ways faced with a new regime of taxes and benefits

Introduction Empirical Public Finance and Dynamic Models • Designing a tax and welfare benefit system in a 2nd best context requires inputs from empirically estimated parameters • The literature tends to focus on estimation of commodity and labour supply elasticities, which are the basic variables that respond to taxes and benefits. • However, individuals are likely to change behaviour in a number of different ways faced with a new regime of taxes and benefits

Introduction Empirical Public Finance and Dynamic models In particular we have in mind the implications for human capital accumulation of programmes such as Unemployment Insurance Earned Income Tax Credit Such programmes will have long run dynamic effects on education choice job mobility and job choice

Introduction Empirical Public Finance and Dynamic Models • In particular we have in mind the implications for Human capital accumulation of programmes such as – Unemployment Insurance – Earned Income Tax Credit • Such programmes will have long run dynamic effects on – education choice – job mobility and job choice

Introduction Empirical Public Finance and Dynamic Models The specific context we will consider is the choice by young Germans to follow apprenticeship training and the subsequent path of wages and employment Our model will explain how individuals choose between the two alternative career paths and will quantify the returns to the career We will then use this framework to simulate the impact of programmes such as the EltC, which are not currently operating Our emphasis will be on the effects of these programmes on human capital accumulation

Introduction Empirical Public Finance and Dynamic Models • The specific context we will consider is the choice by young Germans to follow apprenticeship training and the subsequent path of wages and employment. • Our model will explain how individuals choose between the two alternative career paths and will quantify the returns to the career • We will then use this framework to simulate the impact of programmes such as the EITC, which are not currently operating. • Our emphasis will be on the effects of these programmes on human capital accumulation

Introduction The policy issue Welfare to work policies such as EItc may have deeper implications than just affecting employment They change educational incentives They may affect job search behaviour

Introduction The Policy issue • Welfare to work policies such as EITC may have deeper implications than just affecting employment • They change educational incentives • They may affect job search behaviour

The h le Approach To achieve this we need 1. a model of the education choice This allows us to associate incentives from welfare programmes with earlier choices 2. This model must be linked to career choices and job mobility This allows us to study how wage growth may be affected

The Approach To achieve this we need: 1. A model of the education choice • This allows us to associate incentives from welfare programmes with earlier choices 2. This model must be linked to career choices and job mobility • This allows us to study how wage growth may be affected

Overall aims of the paper 1. To examine the relative benefits of formal versus informal on-the-job training Returns and their source Labour market Flexibility To model wage formation and identify the sources of wage grow th 3. To create a framework where the implications of welfare policies can be analysed in a life-cycle context with all their dynamic implications

Overall aims of the paper 1. To examine the relative benefits of formal versus informal on-the-job training. • Returns and their source • Labour market Flexibility 2. To model wage formation and identify the sources of wage growth. 3. To create a framework where the implications of welfare policies can be analysed in a life-cycle context with all their dynamic implications

More specific questions relating to apprenticeship About 80% of Germans who stop school at 16 follow an apprenticeship training programme. The remaining 20% remain formally unskilled How valuable or otherwise is a formal vocational system? Does it reduce flexibility? How does it compare with less structured on-the -job training that typically occurs in the labour market How important are economic incentives for the choice of education?

More specific questions relating to apprenticeship • About 80% of Germans who stop school at 16 follow an apprenticeship training programme. The remaining 20% remain formally unskilled. • How valuable or otherwise is a formal vocational system? Does it reduce flexibility? • How does it compare with less structured on-the-job training that typically occurs in the labour market? • How important are economic incentives for the choice of education?

Why a model and not just a field experiment or a natural experiment The policy issue we are concerned with is longer term. It relates to the behaviour of future cohorts Even with a longer term perspective in mind we cannot envisage the existence of a control group How do changing incentives affect education choice We need to infer the impact of the policy from analogou effects implied by variations in the current environme To achieve our aim we need to specify structure and use observational data

Why a model and not just a field experiment or a natural experiment? • The policy issue we are concerned with is longer term. It relates to the behaviour of future cohorts. • Even with a longer term perspective in mind we cannot envisage the existence of a control group • We need to infer the impact of the policy from analogous effects implied by variations in the current environment: How do changing incentives affect education choice? • To achieve our aim we need to specify structure and use observational data

Introduction Data We use administrative data from German Social Security records These contain a calendar of all jobs with start and end date excluding civil service job They report the average daily wage either over the year or part thereof when a job change occurs. No averaging across jobs. They also report periods in apprenticeship because these are jobs-albeit very low paid

Introduction Data • We use administrative data from German Social Security records • These contain a calendar of all jobs with start and end date excluding civil service job • They report the average daily wage either over the year or part thereof when a job change occurs. No averaging across jobs. • They also report periods in apprenticeship because these are jobs – albeit very low paid