Advanced Search
MyIDEAS: Login

An Explanation of the Increasing Age Premium

Contents:

Author Info

  • Kapsalis, Constantine

Abstract

The study examines the reason for the significant increase in the ‘age premium’ over the period 1981-94. The age premium refers to the percentage difference in hourly earnings between ‘younger’ (25-34) and ‘older’ (45-54) workers. In 1994, the hourly rate of older males was 32.4% higher than that of younger males. The corresponding age premium among females was 15.5%. Over the period 1981-94, the age premium increased by 15.7 percentage points among males and 19.5 percentage points among females. Evidence based on analysis of the Survey of Consumer Finances (SCF) public use microdata shows that, while there has been a trend toward non-standard employment, this so far has affected mostly workers under age 25 and cannot explain the rise in the age premium between ages 25-to-34 and 45-to- 54, which is the focus of this study. A more likely explanation identified by the study is the dramatic improvement in the level of education of older workers over the last 14 years. For example, from 1981 to 1994 the percentage of older male workers with grade 10 education or less declined from 41.9% to 19.6%, while the percentage with post-secondary diplomas and degrees increased from 32.1% to 51.7%. The education level of younger male workers also improved over the same period, but the rate of improvement was smaller and, by 1994, there was virtually no difference in the incidence of post-secondary diplomas and degrees between younger and older workers. Similar trends took place among female workers. Shift-share analysis shows that the narrowing of the education gap between older and younger workers explains 44% of the age premium rise among male employees and 50% of the age premium rise among female employees. Thus, this study provides the following likely explanation for a significant part of the increase in the age premium over the period 1981-94: Fourteen years ago younger workers had to compete for jobs with older workers who had more experience but less education. Now, they have to compete with older workers who still have more experience but, on the average, have comparable education to younger workers. As a result, employers are willing to pay a higher premium than in the past for older workers who combine experience with higher education.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/25746/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25746.

as in new window
Length:
Date of creation: Jun 1998
Date of revision:
Handle: RePEc:pra:mprapa:25746

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: wage inequality; education and wages; age premium;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Working Papers 4085, National Bureau of Economic Research, Inc.
  2. Kapsalis, Constantine, 1982. "A new measure of wage discrimination," Economics Letters, Elsevier, vol. 9(3), pages 287-293.
  3. Jacob Mincer, 1991. "Human Capital, Technology, and the Wage Structure: What Do Time Series Show?," NBER Working Papers 3581, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:25746. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.