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How individuals obtain their skills and how they are paid for the use of those skills are concepts that are fundamental to the field of labor economics. Productive skills are often referred to as "human capital." The basic idea of human-capital theory is that workers invest in their own skills in order to earn higher wages, much as persons invest in financial or physical assets to earn income. Although this idea goes back at least to Adam Smith, modern human-capital research was originated in the late 1950s by economists Theodore Schultz, Jacob Mincer, and Gary Becker. Their ideas, focusing on investments in and returns to education and training, have provided the theoretical and empirical basis for decades of ensuing research.

Much of the empirical research on the topic of human capital has analyzed the relationship between education and wages. This focus on education is due to the abundance of high-quality data sources with information on both education and wages. For example, analysts using cross-sectional data from the Current Population Survey (CPS) have found that individuals in the United States receive earnings that are approximately 10 percent higher for every additional year of schooling they have completed. Kenneth I. Wolpin's article on education in this special edition of the Monthly Labor Review shows that, over the 15-year period between ages 25 and 39, a male college graduate earns 80 percent more than a male high school graduate without any college, and a male high school graduate earns 57 percent more than a high school dropout.

However, empirical research on training—the other key component of human capital--has lagged research on the economics of education. The human-capital model yields straightforward predictions about the relations hip of on-the-job training to wages, wage growth, and job mobility; still, as will become clear, testing these predictions requires good longitudinal microdata.