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The Covariance Structure of Earnings and the On the Job Training Hypothesis


  • John C. Hause


The fine structure of earnings is defined by a theoretically meaningful decomposition of the covariance matrix of earnings (or log earnings) time series. A three-element variance components model is proposed for analyzing earnings of young workers. These components are interpreted as the effects of differential on-the-job training (OJT) and differential economic ability. Several properties of these components and relationships between them are deduced from the OJT model. Background noise generated by a nonstationary first-order autoregressive process, with heteroscedastic innovations and time-varying AR parameters is also assumed present in observed earnings. ML estimates are obtained for all parameters of the model for a sample of Swedish males. The results are consistent with the view that the OJT mechanism is an empirically significant phenomenon in determining individual earnings profiles.

Suggested Citation

  • John C. Hause, 1973. "The Covariance Structure of Earnings and the On the Job Training Hypothesis," NBER Working Papers 0025, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0025

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    References listed on IDEAS

    1. Lee A. Lillard, 1973. "From Age-Earnings Profiles to the Distribution of Earnings and Human Wealth," NBER Working Papers 0009, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Lazear, Edward P, 1976. "Age, Experience, and Wage Growth," American Economic Review, American Economic Association, vol. 66(4), pages 548-558, September.
    2. Crawley, Edmund, 2020. "In search of lost time aggregation," Economics Letters, Elsevier, vol. 189(C).

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