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Movin On Up: Interpreting the Earnings Experience Profile

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  • Alan Manning

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 e.g. search models 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. In this paper we show 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. We show how 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 that virtually all the earnings gap between men and women can be explained in this way. Overall, the evidence suggests that we do need to rethink our interpretation of the returns to experience in earnings functions.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0380.

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Date of creation: Jan 1998
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Handle: RePEc:cep:cepdps:dp0380

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Katz, L.F. & Murphy, K.M., 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," Harvard Institute of Economic Research Working Papers 1580, Harvard - Institute of Economic Research.
  2. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, May.
  3. 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.
  4. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
  6. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  7. 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.
  8. A Gosling & Stephen Machin, 1995. "The Changing Distribution of Male Wages in the UK," CEP Discussion Papers dp0271, Centre for Economic Performance, LSE.
  9. 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.
  10. Joseph G. Altonji & Robert A. Shakotko, 1985. "Do Wages Rise With Job Seniority?," NBER Working Papers 1616, National Bureau of Economic Research, Inc.
  11. Teulings,Coen & Hartog,Joop, 2008. "Corporatism or Competition?," Cambridge Books, Cambridge University Press, number 9780521049399, October.
  12. Richard Dickens, 1996. "The Evolution of Individual Male Earnings in Great Britain 1974-1994," CEP Discussion Papers dp0306, Centre for Economic Performance, LSE.
  13. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  14. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  15. Richard Dickens, 1996. "The evolution of individual male earnings in Great Britain 1974-1994," LSE Research Online Documents on Economics 20647, London School of Economics and Political Science, LSE Library.
  16. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March.
  17. 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. 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.
  2. Paul Gregg & Rosanna Scutella & Claudia Vittori, 2012. "Earnings Mobility and Inequality: An Integrated Framework Abstract: In this paper we propose an integrated framework for the analysis of earnings inequality and mobility, which enables the analysis of," The Centre for Market and Public Organisation 12/295, Department of Economics, University of Bristol, UK.
  3. Paul J. Devereux & Robert A. Hart, 2009. "Forced to be Rich? Returns to Compulsory Schooling in Britain," Working Papers 200940, Geary Institute, University College Dublin.
  4. Richard Barwell, 2000. "Age structure and the UK unemployment rate," Bank of England working papers 124, Bank of England.
  5. 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.
  6. 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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