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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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    Citations

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    Cited by:

    1. Carlos Carrillo-Tudela, 2010. "Job Search, Human Capital and Wage Inequality," 2010 Meeting Papers 723, Society for Economic Dynamics.
    2. 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.
    3. Ronni Pavan, 2011. "Career Choice and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 29(3), pages 549-587.
    4. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2015. "Wage Inequality," Working Papers 2015-42, Peruvian Economic Association.
    5. 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.
    6. 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.

    More about this item

    Keywords

    Human capital; Job search; Life cycle; Earnings growth;

    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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