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Experience vs. Obsolescence: A Vintage-Human-Capital Model

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Kredler, Matthias

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Abstract

I combine an infinite-horizon version of Ben-Porath’s (1967) model of human-capital accumulation with a vintage structure as in Chari & Hopenhayn (1991). Different skill levelsinside a vintage are complementary in production. Vintage-specific human capital is accumulated based on workers’ optimal strategies and is lost when the technology is phased out by an endogenous firm decision. I establish equivalence between competitive equilibrium and a planner’s problem. It is shown that returns to skill are highest in young vintages. Accelerated technological change shortens the life cycle of a technology and speeds up obsolescence; the premium on tenure rises because more workers are concentrated in young technologies with high skill premia. A calibration exercise comparing two steady states shows that the model quantitatively accounts for the changes in the experience premium, earnings dispersion and earnings turbulence in German data.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10200.

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Date of creation: 28 Jul 2008
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Handle: RePEc:pra:mprapa:10200

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Related research
Keywords: Vintage human capital; age-earnings profiles; partial differential equations;

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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  1. Tor Jakob Klette & Samuel Kortum, 2004. "Innovating Firms and Aggregate Innovation," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 986-1018, October.
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  2. Heckman, James J. & Lochner, Lance J. & Todd, Petra E., 2003. "Fifty Years of Mincer Earnings Regressions," IZA Discussion Papers 775, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Cummins, Jason G & Violante, Giovanni L, 2002. "Investment-Specific Technical Change in the US (1947-2000): Measurement and Macroeconomic Consequences," CEPR Discussion Papers 3584, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Huggett, Mark & Ventura, Gustavo & Yaron, Amir, 2006. "Human capital and earnings distribution dynamics," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 265-290, March. [Downloadable!] (restricted)
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  5. Ken Burdett & Melvyn Coles, 2003. "Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 71(5), pages 1377-1404, 09. [Downloadable!] (restricted)
  6. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and measuring organization capital," Staff Report 291, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  7. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352. [Downloadable!] (restricted)
  9. Claudio Michelacci & Vincenzo Quadrini, 2004. "Financial Markets and Wages," 2004 Meeting Papers 116, Society for Economic Dynamics.
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  10. Peter Gottschalk & Mary Joyce, 1997. "Cross-National Differences in the Rise in Earnings Inequality: Market and Institutional Factors," Boston College Working Papers in Economics 366, Boston College Department of Economics. [Downloadable!]
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  11. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June. [Downloadable!] (restricted)
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  1. Boyan Jovanovic, 2008. "When Should Firms Invest in Old Capital?," NBER Working Papers 14000, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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