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The relative effects of skill formation and job matching on wage growth in Ethiopia

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  • Mengistae, Taye

Abstract

The author analyzes production and labor market data for a random selection of small to medium-size firms in Ethiopia to answer two questions: 1) Does a worker's marginal productivity increase with time in the labor market or with job security, as must be the case if on-the-job skill formation or job matching has anything to do with the dynamics of wages observed in the data? 2) Assuming that marginal productivity grows with experience or seniority, is skill formation more or less important than job matching as a source of growth in productivity? The main feature of the author's analysis is the joint regression of the log of the average product of hours in a firm and the log of average hourly earnings of a firm's employees on the shares of experience-seniority cells of workers in total annual hours in the firm. Marginal productivity falls as experience in the labor market passes the 15-year mark, but the expected marginal product of a mobile worker with 16 or more years of experience is still nearly 80 percent higher than that of the base group.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2104.

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Date of creation: 30 Apr 1999
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Handle: RePEc:wbk:wbrwps:2104

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Related research

Keywords: Environmental Economics&Policies; Economic Theory&Research; Public Health Promotion; Health Monitoring&Evaluation; Labor Policies; Health Monitoring&Evaluation; Inequality; Banks&Banking Reform; Environmental Economics&Policies; Economic Theory&Research;

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  1. Johnson, William R, 1978. "A Theory of Job Shopping," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 261-78, May.
  2. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
  3. David Neumark & Paul Taubman, 1994. "Why Do Wage Profiles Slope Upwards? Tests of the General Human Capital Model," NBER Working Papers 4688, National Bureau of Economic Research, Inc.
  4. Marshall, Robert C & Zarkin, Gary A, 1987. "The Effect of Job Tenure on Wage Offers," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 301-24, July.
  5. Milton Harris & Bengt Holmstrom, 1981. "A Theory of Wage Dynamics," Discussion Papers 488, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Altonji, Joseph G & Shakotko, Robert A, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 437-59, July.
  7. Blakemore, Arthur E & Hoffman, Dennis L, 1989. "Seniority Rules and Productivity: An Empirical Test," Economica, London School of Economics and Political Science, vol. 56(223), pages 359-71, August.
  8. Katharine G. Abraham & Henry S. Farber, 1987. "Job Duration, Seniority, and Earnings," NBER Working Papers 1819, National Bureau of Economic Research, Inc.
  9. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 703-36, December.
  10. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  11. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April.
  12. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  13. Jacob Mincer & Boyan Jovanovic, 1982. "Labor Mobility and Wages," NBER Working Papers 0357, National Bureau of Economic Research, Inc.
  14. 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.
  15. Ann P. Bartel & George J. Borjas, 1981. "Wage Growth and Job Turnover: An Empirical Analysis," NBER Chapters, in: Studies in Labor Markets, pages 65-90 National Bureau of Economic Research, Inc.
  16. Haley, William J, 1976. "Estimation of the Earnings Profile from Optimal Human Capital Accumulation," Econometrica, Econometric Society, vol. 44(6), pages 1223-38, November.
  17. 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.
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