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Movin' on up: Interpreting the Earnings-Experience Profile

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  • Manning, Alan

Abstract

Human capital theory provides the generally accepted interpretation of the relationship between earnings and labour market experience, namely that general human capital tends to increase with experience. However, there are other plausible interpretations. Search models, for example, generally predict that more time in the labour market increases the chance of finding a better match and hence tends to be associated with higher earnings. This paper shows how a simple search model can be used to predict the amount of earnings growth that can be assigned to search with the residual being assigned to the human capital model. A substantial if not the larger part of the rise in earnings over the life-cycle in Britain can be explained by a simple search model, and virtually all the earnings gap between men and women can be explained in this way. Overall, the evidence suggests that we do need to reinterpret the returns to experience in earnings functions. Copyright 2000 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Bulletin of Economic Research.

Volume (Year): 52 (2000)
Issue (Month): 4 (October)
Pages: 261-95

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Handle: RePEc:bla:buecrs:v:52:y:2000:i:4:p:261-95

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References

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  1. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-76, February.
  2. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Gosling, Amanda & Machin, Stephen & Meghir, Costas, 2000. "The Changing Distribution of Male Wages in the U.K," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 635-66, October.
  4. Murphy, Kevin M & Welch, Finis, 1990. "Empirical Age-Earnings Profiles," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 202-29, April.
  5. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  6. Teulings,Coen & Hartog,Joop, 1998. "Corporatism or Competition?," Cambridge Books, Cambridge University Press, number 9780521590730, November.
  7. Altonji, Joseph G & Shakotko, Robert A, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 437-59, July.
  8. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March.
  9. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
  10. Dickens, Richard, 2000. "The Evolution of Individual Male Earnings in Great Britain: 1975-95," Economic Journal, Royal Economic Society, vol. 110(460), pages 27-49, January.
  11. Joseph G. Altonji & Nicolas Williams, 1992. "The Effects of Labor Market Experience, Job Seniority, and Job Mobility on Wage Growth," NBER Working Papers 4133, National Bureau of Economic Research, Inc.
  12. John Schmitt, 1993. "The Changing Structure of Male Earnings in Britain," CEP Discussion Papers dp0122, Centre for Economic Performance, LSE.
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Cited by:
  1. Richard Barwell, 2000. "Age structure and the UK unemployment rate," Bank of England working papers 124, Bank of England.
  2. Michal Myck & Gillian Paull, 2001. "The role of employment experience in explaining the gender wage gap," IFS Working Papers W01/18, Institute for Fiscal Studies.
  3. Alan Manning & Joanna Swaffield, 2005. "The Gender Gap in Early Career Wage Growth," CEP Discussion Papers dp0700, Centre for Economic Performance, LSE.
  4. Alan Manning & Joanna Swaffield, 2005. "The gender gap in early career wage growth," LSE Research Online Documents on Economics 19883, London School of Economics and Political Science, LSE Library.
  5. Paul Gregg & Rosanna Scutella & Claudia Vittori, 2012. "Earnings Mobility and Inequality: An Integrated Framework," Melbourne Institute Working Paper Series wp2012n26, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  6. Paul J. Devereux & Robert A. Hart, 2010. "Forced to be Rich? Returns to Compulsory Schooling in Britain," Economic Journal, Royal Economic Society, vol. 120(549), pages 1345-1364, December.
  7. Fitzenberger, Bernd & Wunderlich, Gaby, 2001. "The changing gender gap across the wage distribution in the UK," ZEW Discussion Papers 01-56, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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