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Labour Market Training in Norway - Effects on Earnings

Authors:

Raaum, Oddbjørn and Hege Torp

Year:

2001

Reference:

Labour Economics

vol 8(5)

Summary

By means of a six-year panel of annual earnings data, we estimate the impact of a labour market training programme (LMT) targeted at unemployed adults. Unlike most non-experimental studies, we use an internal comparison group of rejected applicants to measure the counterfactual outcome of trainees. For a sub-sample of applicants, rejections were randomised on a course by course basis. Following Heckman and Hotz (1989) we test alternative estimators. All models report positive effects of being offered training, though not always significantly different from zero. The linear control estimator reports significantly positive effects of training. Analysing courses with ordinary assignment, the pre-training test indicates a positive selection bias. Turning to applicants for courses with random assignment, the linear control model is not rejected by the pre-training test. The fixed effect, random growth and modified random growth models are rejected by the model restriction test; this is the case for courses with ordinary as well as random assignment. We illustrate the value of an internal comparison group to estimate the counterfactual outcome of participants, by comparing the post-training outcome for rejected applicants and unemployed non-applicants. Rejected applicants have significantly higher post-training earnings than eligible non-applicants, indicating that self-selection into the programme is influenced by unobservables. In general, the results clearly support the view that reliable studies of training effects should be based on internal comparison groups. Moreover, the assumptions motivating non-experimental estimators should be explicitly tested.

JEL:

J24, J31

Keywords:

Training, Impact on Earnings, Non-experimental evaluation, Active labour market policy

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