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The relationship between wage growth and wage levels

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  • Tricia Gladden

    (Bureau of Labor Statistics, Washington, DC, USA)

  • Christopher Taber

    (Department of Economics, University of Wisconsin-Madison, Madison, WI, USA)

Abstract

We estimate the covariance between the permanent component of wages and a random coefficient on experience in models both with potential experience and with actual experience. Actual experience is allowed to be arbitrarily correlated with both the permanent component of wages and the random component on experience. We find no evidence that workers of higher ability experience faster wage growth. Our point estimates suggest that a worker with a one standard deviation higher level of permanent ability would have a return to annual potential experience that is 0.61 of a percentage point lower. The analogous point estimate for actual experience is 0.87 of a point lower. Contrary to the popular perception, wage growth among low-skill workers appears to be at least as high as that for a medium-skilled worker. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Tricia Gladden & Christopher Taber, 2009. "The relationship between wage growth and wage levels," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 914-932.
    • Handle: RePEc:jae:japmet:v:24:y:2009:i:6:p:914-932
    DOI: 10.1002/jae.1072
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    Cited by:

    1. Lorenzo Cappellari, 2011. "Flexicurity, wage dynamics and inequality over the life-cycle," DISCE - Quaderni dell'Istituto di Economia dell'Impresa e del Lavoro ieil0064, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Paul Bingley & Lorenzo Cappellari & Niels Westergård‐Nielsen, 2013. "Unemployment Insurance, Wage Dynamics and Inequality Over the Life Cycle," Economic Journal, Royal Economic Society, vol. 0, pages 341-372, May.
    3. Paul Bingley & Lorenzo Cappellari, 2019. "Correlation of Brothers' Earnings and Intergenerational Transmission," The Review of Economics and Statistics, MIT Press, vol. 101(2), pages 370-383, May.
    4. Tom Günther & Ulrich C. Schneider & Fabian Stürmer-Heiber, 2023. "Working More for Less: Part-time Penalties Across the Working Hours Distribution?," Berlin School of Economics Discussion Papers 0025, Berlin School of Economics.
    5. Alexander Plum & Gail Pacheco & Kabir Dasgupta, 2021. "When There is No Way Up: Reconsidering Low‐paid Jobs as Stepping‐stones," The Economic Record, The Economic Society of Australia, vol. 97(318), pages 387-409, September.
    6. Magnac, Thierry & Roux, Sébastien, 2021. "Heterogeneity and wage inequalities over the life cycle," European Economic Review, Elsevier, vol. 134(C).
    7. Xi Chen & Bertrand M. Koebel, 2017. "Fixed Cost, Variable Cost, Markups and Returns to Scale," Annals of Economics and Statistics, GENES, issue 127, pages 61-94.

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