Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs

Abstract

In this paper we set out some methods that utilize the longitudinal structure of earnings of trainees and a comparison group to estimate the effectiveness of training for the 1976 cohort of CETA trainees. By fitting a components-of—variance model of earnings to the control group, and by posing a simple model of program participation, we are able to predict the entire pre-training and post—training earnings histories of the trainees. The fit of these predictions to the pre-training earnings of the CETA participants provides a test of the model of earnings generation and program participation and a simple check on the corresponding estimate of the effectiveness of training. Two assumptions have a strong influence on the magnitude of the estimated training effects: the timing of the decision to participate in training, and the presence or absence of individual-specific trends in earnings. We find considerable evidence that trainee earnings con— tain permanent, transitory,and trend—like components of selection bias. We are less successful in empirically distinguishing between alternative assumptions on the timing of the participation decision. If earnings in the year prior to training are the appropriate selection criterion, then our estimate of the training effect for adult male CETA partici- pants is about 300 dollars per year. Our estimates for female CETA participants are larger and less sensitive to alternative models of program participation.