THE RATE OF RETURN TO INVESTMENTS IN ON-THE-JOB TRAINING

In this paper we use the overtaking method to calculate marginal rates of return to on-the-job training. As we have no prior information on who invests in OJT and who does not, we use a switching regression model with unknown regimes to obtain parameter estimates of the wage profiles. The estimation results show that lower intercepts are associated with steeper wage profiles. This confirms the prediction that those who invest in OJT have lower initial wages but higher wage growth. We further find that the marginal rate of return to OJT is high, and increases with education.