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Return to Experience and Initial Wage Level: Do Low Wage Workers Catch Up?

Author

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  • Kenneth L. Sørensen

    (Department of Economics and Business, Aarhus University, Denmark)

  • Rune Vejlin

    (Department of Economics and Business, Aarhus University, Denmark)

Abstract

This paper estimates the relationship between initial wage and return to experience. We use a Mincer-like wage model to nonparametrically 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 finding to two main theories of wage growth, namely search and human capital. We are able to test if search frictions are the main driver of the negative relationship, but we find this is not the case.

Suggested Citation

  • Kenneth L. Sørensen & Rune Vejlin, 2012. "Return to Experience and Initial Wage Level: Do Low Wage Workers Catch Up?," Economics Working Papers 2012-02, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2012-02
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    References listed on IDEAS

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    1. Helen Connolly & Peter Gottschalk, 2000. "Differences in Wage Growth by Education Level: Do Less Educated Workers Gain Less from Work Experience?," Boston College Working Papers in Economics 473, Boston College Department of Economics, revised 26 Aug 2006.
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    Cited by:

    1. 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.
    2. Magnac, Thierry & Roux, Sébastien, 2021. "Heterogeneity and wage inequalities over the life cycle," European Economic Review, Elsevier, vol. 134(C).
    3. 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.
    4. 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.
    5. Labanca, Claudio & Pozzoli, Dario, 2022. "Hours Constraints and Wage Differentials across Firms," IZA Discussion Papers 14992, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Wage growth; initial wage; return to experience; nonparametric estimation;
    All these keywords.

    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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