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Movin On Up: Interpreting the Earnings Experience Profile

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  • Alan Manning

Abstract

Human capital theory provides the generally accepted interpretation of the relationship between earnings and labour market experience, namely that general human capital tends to increase with experience. However, there are other plausible interpretations e.g. search models generally predict that more time in the labour market increases the chance of finding a better match and hence tends to be associated with higher earnings. In this paper we show how a simple search model can be used to predict the amount of earnings growth that can be assigned to search with the residual being assigned to the human capital model. We show how a substantial if not the larger part of the rise in earnings over the life-cycle in Britain can be explained by a simple search model and that virtually all the earnings gap between men and women can be explained in this way. Overall, the evidence suggests that we do need to rethink our interpretation of the returns to experience in earnings functions.

Suggested Citation

  • Alan Manning, 1998. "Movin On Up: Interpreting the Earnings Experience Profile," CEP Discussion Papers dp0380, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0380
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    References listed on IDEAS

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    1. John Schmitt, 1993. "The Changing Structure of Male Earnings in Britain," CEP Discussion Papers dp0122, Centre for Economic Performance, LSE.
    2. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-324, March.
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    4. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
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    7. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters,in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
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    9. Dickens, Richard, 1996. "The evolution of individual male earnings in Great Britain 1974-1994," LSE Research Online Documents on Economics 20647, London School of Economics and Political Science, LSE Library.
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    13. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, June.
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    Cited by:

    1. Paul J. Devereux & Robert A. Hart, 2010. "Forced to be Rich? Returns to Compulsory Schooling in Britain," Economic Journal, Royal Economic Society, vol. 120(549), pages 1345-1364, December.
    2. Michal Myck & Gillian Paull, 2001. "The role of employment experience in explaining the gender wage gap," IFS Working Papers W01/18, Institute for Fiscal Studies.
    3. Alan Manning & Joanna Swaffield, 2008. "The gender gap in early-career wage growth," Economic Journal, Royal Economic Society, vol. 118(530), pages 983-1024, July.
    4. Fitzenberger, Bernd & Wunderlich, Gaby, 2001. "The changing gender gap across the wage distribution in the UK," ZEW Discussion Papers 01-56, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Paul Gregg & Rosanna Scutella & Claudia Vittori, 2012. "Earnings Mobility and Inequality: An Integrated Framework," The Centre for Market and Public Organisation 12/295, Department of Economics, University of Bristol, UK.
    6. Richard Barwell, 2000. "Age structure and the UK unemployment rate," Bank of England working papers 124, Bank of England.
    7. Carrillo-Tudela, C, 2005. "Wage-Experience Contracts and Employment Status," Economics Discussion Papers 2733, University of Essex, Department of Economics.

    More about this item

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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