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The Contributions of Search and Human Capital to Earnings Growth Over the Life Cycle

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Abstract

This paper presents and estimates a unified model where both human capital investment and job search are endogenized. This unification enables us to quantify the relative contributions of each mechanism to life cycle earnings growth, while investigating potential interactions between human capital investment and job search. Within the unified framework, the expectation of rising rental rates of human capital through job search gives workers more incentive to invest in human capital. In addition, unemployed workers reduce their reservation rental rates and increase their search effort to leave unemployment quickly to take advantage of human capital accumulation on the job. The results show both forces are important for earnings growth and the interactions are substantial: human capital accumulation accounts for 31% of total earnings growth, job search accounts for 46%, and the remaining 23% is due to the interactions of the two.

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File URL: http://economics.uwo.ca/cibc/workingpapers_docs/wp2012/Bowlus_Liu02.pdf
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Bibliographic Info

Paper provided by University of Western Ontario, CIBC Centre for Human Capital and Productivity in its series University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers with number 20122.

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Date of creation: 2012
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Handle: RePEc:uwo:hcuwoc:20122

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Postal: CIBC Centre for Human Capital and Productivity, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/cibc_workingpapers.html

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Keywords: Human Capital; Job Search; Life Cycle; Earnings Growth;

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References

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  1. Claudio Michelacci & Josep Pijoan-Mas, 2012. "Intertemporal Labour Supply with Search Frictions," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 899-931.
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  7. Carlos Carrillo-Tudela, 2012. "Job Search, Human Capital and Wage Inequality," CESifo Working Paper Series 3979, CESifo Group Munich.
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  32. Uta Schönberg, 2007. "Wage Growth Due to Human Capital Accumulation and Job Search: A Comparison between the United States and Germany," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 60(4), pages 562-586, July.
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Cited by:
  1. Ronni Pavan, 2011. "Career Choice and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 29(3), pages 549 - 587.
  2. repec:ese:iserwp:2012-23 is not listed on IDEAS

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