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The Trade-Off between Wages and Wage Growth

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  • John Garen

Abstract

This paper tests the theory of compensating differentials by estimating the sacrifice in current earnings necessary to acquire employment leading to future wage growth. Utilizing longitudinal data, the predicted value of each individual's actual wage growth subsequent to the current period is related to the current wage. The results indicate a strong, inverse relationship between current earnings and the amount of future wage growth "purchased." The magnitude of this trade-off between current and future earnings varies with schooling, as does the total amount of current earnings capacity invested in wage growth. These findings are then compared to related results in the human capital production function literature.

Suggested Citation

  • John Garen, 1985. "The Trade-Off between Wages and Wage Growth," Journal of Human Resources, University of Wisconsin Press, vol. 20(4), pages 522-539.
    • Handle: RePEc:uwp:jhriss:v:20:y:1985:i:4:p:522-539
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