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Earning ability over the life cycle

Author

Listed:
  • Andrea Albanese
  • Lorenzo Cappellari

    (Università Cattolica del Sacro Cuore
    Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)

  • Marco Ovidi

    (Università Cattolica del Sacro Cuore
    Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)

Abstract

We study how worker-specific ability to generate earnings evolves over the life cycle. We measure the dynamics of earning ability by extending the canonical AKM model of wage determination to allow worker effects to vary as individuals age. Age-dependent estimates of earning ability unveil heterogeneous career trajectories, with high ability workers sorting into higher-paying employers early in their careers and moving to different firms to a lesser extent thereafter. We show that earning ability significantly decreases after job loss, suggesting that it is at least partly match-specific. This result is particularly pronounced for high-ability workers, who, conversely, are the ones experiencing the lowest penalties in employer pay after job loss.

Suggested Citation

  • Andrea Albanese & Lorenzo Cappellari & Marco Ovidi, 2025. "Earning ability over the life cycle," DISCE - Working Papers del Dipartimento di Economia e Finanza def148, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    • Handle: RePEc:ctc:serie1:def148
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    Keywords

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    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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