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Why Do Wage Profiles Slope Upward? Tests of the General Human Capital Model

  • Neumark, David
  • Taubman, Paul

This article tests the implications of the general human capital that (1) at the individual level, there is a negative relationship between the initial wage level and wage growth of inexperienced workers and (2) at the market level, the ratio of the present values of wage profiles of investors and otherwise identical noninvestors equals one. The authors find a negative relationship between initial wage levels and wage growth, even after correcting for negative biases in existing estimates of this relationship. They also find that the ratio of the present values of rising wage profiles to flat wage profiles is generally close to one. Copyright 1995 by University of Chicago Press.

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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 13 (1995)
Issue (Month): 4 (October)
Pages: 736-61

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Handle: RePEc:ucp:jlabec:v:13:y:1995:i:4:p:736-61
Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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  1. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
  2. Lazear, Edward P & Moore, Robert L, 1984. "Incentives, Productivity, and Labor Contracts," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 275-96, May.
  3. Willis, Robert J., 1987. "Wage determinants: A survey and reinterpretation of human capital earnings functions," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 10, pages 525-602 Elsevier.
  4. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
  5. Brown, James N, 1989. "Why Do Wages Increase with Tenure? On-the-Job Training and Life-Cycle Wage Growth Observed within Firms," American Economic Review, American Economic Association, vol. 79(5), pages 971-91, December.
  6. George A. Akerlof & Lawrence F. Katz, 1988. "Workers' Trust Funds and the Logic of Wage Profiles," NBER Working Papers 2548, National Bureau of Economic Research, Inc.
  7. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  8. Alan S. Blinder, 1982. "Private Pensions and Public Pensions: Theory and Fact," NBER Working Papers 0902, National Bureau of Economic Research, Inc.
  9. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
  10. Judith K. Hellerstein & David Neumark, 1995. "Are Earnings Profiles Steeper Than Productivity Profiles? Evidence from Israeli Firm-Level Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 89-112.
  11. Blackburn, McKinley L & Neumark, David, 1993. "Omitted-Ability Bias and the Increase in the Return to Schooling," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 521-44, July.
  12. Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January.
  13. Polachek, Solomon William, 1975. "Differences in Expected Post-school Investments as a Determinant of Market Wage Differentials," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 451-70, June.
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