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Return To Experience And Initial Wage Level: Do Low Wage Workers Catch Up?

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  • Kenneth L. Sørensen
  • Rune Vejlin

Abstract

SUMMARY This paper estimates the relationship between initial wage and return to experience. We use a Mincer‐like wage model to non‐parametrically estimate this relationship allowing for an unobservable individual permanent effect in wages and unobservable individual return to experience. The relationship between return to experience and unobservable individual ability is negative when conditioning on educational attainment, while the relationship between return to experience and educational attainment is positive. We link our findings to three main theories of wage growth, namely search, unobserved productivity and learning, and human capital. We devise several empirical tests in order to separate the theories. We find evidence in favor of the unobserved productivity and learning model and mixed evidence regarding the search model. We find no evidence in support of the human capital model. Copyright © 2013 John Wiley & Sons, Ltd.

Suggested Citation

  • Kenneth L. Sørensen & Rune Vejlin, 2014. "Return To Experience And Initial Wage Level: Do Low Wage Workers Catch Up?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(6), pages 984-1006, September.
    • Handle: RePEc:wly:japmet:v:29:y:2014:i:6:p:984-1006
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    Cited by:

    1. Magnac, Thierry & Roux, Sébastien, 2021. "Heterogeneity and wage inequalities over the life cycle," European Economic Review, Elsevier, vol. 134(C).
    2. Labanca, Claudio & Pozzoli, Dario, 2022. "Hours Constraints and Wage Differentials across Firms," IZA Discussion Papers 14992, Institute of Labor Economics (IZA).
    3. Ainara González de San Román & Yolanda F. Rebollo‐Sanz, 2018. "An Estimation Of Worker And Firm Effects With Censored Data," Bulletin of Economic Research, Wiley Blackwell, vol. 70(4), pages 459-482, October.
    4. Gobillon, Laurent & Magnac, Thierry & Roux, Sébastien, 2022. "Lifecycle Wages and Human Capital Investments: Selection and Missing Data," TSE Working Papers 22-1299, Toulouse School of Economics (TSE).
    5. Alexander Plum & Gail Pacheco & Kabir Dasgupta, 2021. "When There is No Way Up: Reconsidering Low‐paid Jobs as Stepping‐stones," The Economic Record, The Economic Society of Australia, vol. 97(318), pages 387-409, September.
    6. Erica Delugas & Francesco Giffoni & Emanuela Sirtori & Johannes Gutleber, 2025. "The Human Capital Accumulation at Research Infrastructures: Reexamining Wage Returns to Training, Models, Interpretation, and Magnitude," Papers 2502.07419, arXiv.org.
    7. Yolanda F. Rebollo-Sanz, 2017. "Decomposing the structure of wages into firm and worker effects: some insights from a high unemployment economy," Working Papers 17.10, Universidad Pablo de Olavide, Department of Economics.

    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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