Recent calls for wage subsidies have emphasized their value for attaching low-skill persons to the workplace, attracting them away from lives of idleness or crime (Phelps, 1997; Heckman, Lochner, Smith and Taber, 1997; and Lochner, 1998). Previous empirical research on wage subsidies has focused exclusively on their effects on employment and labor supply. This chapter examines the impact of wage subsidies on skill formation.