Why did the youth training scheme reduce reduce the wages of young people? A story of human capital formation, reservation wages and job offers

In a previous paper (O'Higgins, 1994) I looked at the effects that participation on the Youth Training Scheme (YTS) in Britain had on young people's chances of finding work. The discussions of YTS in that paper suggest that wages might be a second suitable indicator of the effectiveness of YTS. However, whereas the effect of YTS on employment probability was expected to be unequivocally positive, its influence on wages is not so clear cut. From the point of view of the scheme's proponents, two distinct and opposing "desired" effects may be identified. Firstly, YTS was intended to raise the levels of participants' human capital. Thus, one would expect a positive "human capital effect" on wages arising through the greater post-programme productivity of participants. Secondly, YTS was also to make young people's wage expectations "more realistic" (i.e. lower). Thus, there should be a second negative effect arising from the lower "expected", and/or reservation wages of participants. In addition, in what follows, a third effect due to the increased chances of receiving a job offer arising out of YTS participations in also identified.