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The contributions of search and human capital to earnings growth over the life cycle

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  • Bowlus, Audra J.
  • Liu, Huju

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 50% of total earnings growth, job search accounts for 20%, and the remaining 30% is due to the interactions of the two.

Suggested Citation

  • Bowlus, Audra J. & Liu, Huju, 2013. "The contributions of search and human capital to earnings growth over the life cycle," European Economic Review, Elsevier, vol. 64(C), pages 305-331.
    • Handle: RePEc:eee:eecrev:v:64:y:2013:i:c:p:305-331
    DOI: 10.1016/j.euroecorev.2013.10.002
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    Cited by:

    1. Bobba, Matteo & Flabbi, Luca & Levy, Santiago & Tejada, Mauricio, 2021. "Labor market search, informality, and on-the-job human capital accumulation," Journal of Econometrics, Elsevier, vol. 223(2), pages 433-453.
    2. Magnac, Thierry & Roux, Sébastien, 2021. "Heterogeneity and wage inequalities over the life cycle," European Economic Review, Elsevier, vol. 134(C).
    3. Carlos Carrillo-Tudela, 2010. "Job Search, Human Capital and Wage Inequality," 2010 Meeting Papers 723, Society for Economic Dynamics.
    4. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2016. "Wage Inequality: A Structural Decomposition," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 20-37, January.
    5. Ronni Pavan, 2011. "Career Choice and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 29(3), pages 549-587.
    6. Thierry Magnac, 2024. "Human Capital and Search Models: A Happy Match," Revue économique, Presses de Sciences-Po, vol. 75(1), pages 11-29.
    7. Fatih Karahan & Serdar Ozkan & Jae Song, 2019. "Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job Ladder Risk vs. Human Capital," Staff Reports 908, Federal Reserve Bank of New York.
    8. Guyonne Kalb & Jordy Meekes, 2021. "Wage Growth Distribution and Changes over Time: 2001–2018," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(1), pages 76-93, March.
    9. Rune Vejlin & Gregory F. Veramendi, 2023. "Sufficient statistics for frictional wage dispersion and growth," Quantitative Economics, Econometric Society, vol. 14(3), pages 935-979, July.
    10. Chernina, Eugenia & Gimpelson, Vladimir, 2022. "Do Wages Grow with Experience? Deciphering the Russian Puzzle," IZA Discussion Papers 15068, Institute of Labor Economics (IZA).
    11. Xiao Ma & Alejandro Nakab & Daniela Vidart, 2024. "Human Capital Investment and Development: The Role of On-the-Job Training," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 2(1), pages 107-148.
    12. Chernina, Eugenia & Gimpelson, Vladimir, 2023. "Do wages grow with experience? Deciphering the Russian puzzle," Journal of Comparative Economics, Elsevier, vol. 51(2), pages 545-563.
    13. López-Martín Bernabé & Takayama Naoki, 2015. "The Blighted Youth: The Impact of Recessions and Policies on Life-Cycle Unemployment," Working Papers 2015-22, Banco de México.
    14. Abel, Jaison R. & Deitz, Richard, 2015. "Agglomeration and job matching among college graduates," Regional Science and Urban Economics, Elsevier, vol. 51(C), pages 14-24.
    15. Benjamin S. Griffy, 2021. "Search And The Sources Of Life‐Cycle Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1321-1362, November.
    16. Guyonne Kalb & Jordy Meekes, 2019. "Wage Growth Distribution and Decline among Individuals: 2001-2017," RBA Annual Conference Papers acp2019-03, Reserve Bank of Australia, revised Jul 2019.
    17. Audra J. Bowlus & Masashi Miyairi & Chris Robinson, 2016. "Immigrant job search assimilation in Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 5-51, February.
    18. Magnac, Thierry, 2023. "Capital humain et recherche d'emploi: un mariage heureux - Human Capital and Search Models: A Happy Match," TSE Working Papers 23-1489, Toulouse School of Economics (TSE).
    19. Benjamin Griffy, 2018. "Borrowing Constraints, Search, and Life-Cycle Inequality," Discussion Papers 18-01, University at Albany, SUNY, Department of Economics.
    20. Victoria Gregory, 2020. "Firms as Learning Environments: Implications for Earnings Dynamics and Job Search," Working Papers 2020-036, Federal Reserve Bank of St. Louis, revised Sep 2023.
    21. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2015. "Wage Inequality," Working Papers 42, Peruvian Economic Association.
    22. Ma, Xiao & Muendler, Marc-Andreas & Nakab, Alejandro, 2020. "Learning by Exporting and Wage Profiles: New Evidence from Brazil," MPRA Paper 109497, University Library of Munich, Germany, revised 31 Aug 2021.
    23. Xiao Ma & Alejandro Nakab & Daniela Vidart, 2022. "How do Workers Learn? Theory and Evidence on the Roots of Lifecycle Human Capital Accumulation," Working papers 2022-11, University of Connecticut, Department of Economics, revised Jun 2024.
    24. Cordoba, Juan C. & Isojärvi, Anni & Li, Haoran, 2020. "Equilibrium Unemployment: The Role Of Discrimination," ISU General Staff Papers 202011140800001116, Iowa State University, Department of Economics.

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    More about this item

    Keywords

    Human capital; Job search; Life cycle; Earnings growth;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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