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The Price of Experience

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  • Hyeok Jeong
  • Yong Kim
  • Iourii Manovskii

Abstract

We identify a key role of factor supply, driven by demographic changes, in shaping several empirical regularities that are a focus of active research in macro and labor economics. In particular, demographic changes alone can account for the large movements of the return to experience over the last four decades, for the differential dynamics of the age premium across education groups emphasized by Katz and Murphy (1992), for the differential dynamics of the college premium across age groups emphasized by Card and Lemieux (2001), and for the changes in cross-sectional and cohort-based life-cycle profiles emphasized by Kambourov and Manovskii (2005). (JEL D91, E24, I23, J11, J24, J31)

Suggested Citation

  • Hyeok Jeong & Yong Kim & Iourii Manovskii, 2015. "The Price of Experience," American Economic Review, American Economic Association, vol. 105(2), pages 784-815, February.
  • Handle: RePEc:aea:aecrev:v:105:y:2015:i:2:p:784-815
    Note: DOI: 10.1257/aer.20080841
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    References listed on IDEAS

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    1. Robert K. Triest & Steven A. Sass & Margarita Sapozhnikov, 2006. "Population Aging And The Structure Of Wages," Working Papers, Center for Retirement Research at Boston College wp2006-5, Center for Retirement Research.
    2. Robert H. Topel, 1997. "Factor Proportions and Relative Wages: The Supply-Side Determinants of Wage Inequality," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 55-74, Spring.
    3. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 705-746.
    4. Fatih Guvenen & Burhanettin Kuruscu, 2010. "A Quantitative Analysis of the Evolution of the U.S. Wage Distribution, 1970-2000," NBER Chapters,in: NBER Macroeconomics Annual 2009, Volume 24, pages 227-276 National Bureau of Economic Research, Inc.
    5. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
    6. Michael W. L. Elsby & Matthew D. Shapiro, 2012. "Why Does Trend Growth Affect Equilibrium Employment? A New Explanation of an Old Puzzle," American Economic Review, American Economic Association, vol. 102(4), pages 1378-1413, June.
    7. Light, Audrey & Ureta, Manuelita, 1995. "Early-Career Work Experience and Gender Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 13(1), pages 121-154, January.
    8. Hyeok Jeong & Yong Kim, 2006. "Complementarity and Transition to Modern Economic Growth," IEPR Working Papers 06.44, Institute of Economic Policy Research (IEPR).
    9. Iourii Manovskii & Gueorgui Kambourov, 2005. "Accounting for the Changing Life-Cycle Profile of Earnings," 2005 Meeting Papers 231, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Verdugo, Gregory, 2014. "The great compression of the French wage structure, 1969–2008," Labour Economics, Elsevier, vol. 28(C), pages 131-144.
    2. Anagnostopoulos, Alexis & Atesagaoglu, Orhan Erem & Carceles-Poveda, Eva, 2013. "Skill-biased technological change and homeownership," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 3012-3033.
    3. Josep Pijoan-Mas & Virginia Sanchez-Marcos, 2010. "Spain is Different: Falling Trends of Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 154-178, January.
    4. Kong, Y.-C. & Ravikumar, B. & Vandenbroucke, G., 2018. "Explaining cross-cohort differences in life-cycle earnings," European Economic Review, Elsevier, vol. 107(C), pages 157-184.
    5. Theodore Koutmeridis, 2013. "The Market for "Rough Diamonds": Information, Finance and Wage Inequality," CDMA Working Paper Series 201307, Centre for Dynamic Macroeconomic Analysis, revised 14 Oct 2013.
    6. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
    7. repec:eee:moneco:v:99:y:2018:i:c:p:1-19 is not listed on IDEAS
    8. repec:cup:jpenef:v:17:y:2018:i:02:p:200-230_00 is not listed on IDEAS
    9. Li Tan & Cory Koedel, 2019. "The Effects of Differential Income Replacement and Mortality on U.S. Social Security Redistribution," Southern Economic Journal, John Wiley & Sons, vol. 86(2), pages 613-637, October.
    10. repec:eee:labeco:v:52:y:2018:i:c:p:83-97 is not listed on IDEAS
    11. Heijdra, Ben J. & Reijnders, Laurie S. M., 2018. "Longevity shocks with age-dependent productivity growth," Journal of Pension Economics and Finance, Cambridge University Press, vol. 17(02), pages 200-230, April.
    12. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, Elsevier.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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