Volume 1.2 - Human Capital- Spring 1997

Title: The Effects of Government Policy on Human Capital Investment and Wage Inequality

Authors: James J. Heckman, Lance Lochner, Jeffrey Smith, Christopher Taber

Abstract: The decline in relative earnings for unskilled workers over the last 25 years has renewed interest in policies that encourage human development among persons with low levels of ability and education. Four types of government policies affecting skill formation have been proposed, including: (1) subsidized training programs, (2) wage subsidies, (3) school-based initiatives, and (4) tax policy. We examine the impacts that each of these policies has on the human capital investment of low- and high-skill workers and how those policies might be changed in order to promote skill formation and reduce income inequality.

About the Authors: James J. Heckman is the Henry Schultz Distinguished Professor of Economics, Director of the Center for Social Program Evaluation at the University of Chicago and Senior Research Fellow at the American Bar Foundation. Lance Lochner is a Research Associate at the Center for Social Program Evaluation, University of Chicago. Jeffrey Smith is Assistant Professor of Economics at the University of Western Ontario. Christopher Taber is Assistant Professor of Economics at Northwestern University.

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