IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Why Do Wage Profiles Slope Upwards? Tests of the General Human Capital Model

Author Info

Listed author(s):
  • David Neumark
  • Paul Taubman

Abstract

This paper tests some empirical implications of the general human capital model's explanation of rising wage profiles. At the individual level, the model implies that there will be a negative relationship between the initial wage level and wage growth of young, inexperienced workers. At the market level, the model implies that the present value of the wage profile of an investor equals that of an otherwise identical non-investor, or that the ratio of the present values equals one. We test both of these hypotheses. Evidence on the wage level-wage growth tradeoff points to a negative relationship between initial wage levels and wage growth, even after correcting for negative biases that may have influenced existing estimates of this relationship. Evidence on present values of wage profiles suggests that the ratio of the present value of rising wage profiles to flat wage profiles is quite close to one. Alternative estimates of this ratio are tightly clustered around one, and more often than not are insignificantly different from one. Overall, then, the evidence is largely consistent with the general human capital model.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w4688.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4688.

as
in new window

Length:
Date of creation: Mar 1994
Publication status: published as Journal of Labor Economics, Vol. 13, no. 4 (1995): pp. 736-761.
Handle: RePEc:nbr:nberwo:4688
Note: LS
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

Keywords:

Other versions of this item:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Willis, Robert J., 1987. "Wage determinants: A survey and reinterpretation of human capital earnings functions," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 10, pages 525-602 Elsevier.
  2. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-620, September.
  3. Alan S. Blinder, 1982. "Private Pensions and Public Pensions: Theory and Fact," NBER Working Papers 0902, National Bureau of Economic Research, Inc.
  4. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
  5. Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January.
  6. Judith K. Hellerstein & David Neumark, 1995. "Are Earnings Profiles Steeper Than Productivity Profiles? Evidence from Israeli Firm-Level Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 89-112.
  7. George A. Akerlof & Lawrence F. Katz, 1989. "Workers' Trust Funds and the Logic of Wage Profiles," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 525-536.
  8. Brown, James N, 1989. "Why Do Wages Increase with Tenure? On-the-Job Training and Life-Cycle Wage Growth Observed within Firms," American Economic Review, American Economic Association, vol. 79(5), pages 971-991, December.
  9. Robert H. Topel & Michael P. Ward, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 439-479.
  10. Blackburn, McKinley L & Neumark, David, 1993. "Omitted-Ability Bias and the Increase in the Return to Schooling," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 521-544, July.
  11. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
  12. Edward P. Lazear & Robert L. Moore, 1984. "Incentives, Productivity, and Labor Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 99(2), pages 275-296.
  13. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352-352.
  14. Polachek, Solomon William, 1975. "Differences in Expected Post-school Investments as a Determinant of Market Wage Differentials," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 451-470, June.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as
in new window


Cited by:

  1. Zwick, Thomas, 2009. "Why Pay Seniority Wages?," ZEW Discussion Papers 09-005, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Mateusz Walewski, 2007. "Analysis of cross-country differences in the shape of the age-wage relationship with an attempt to tackle age-productivity differences within the EU," CASE Network Studies and Analyses 0351, CASE-Center for Social and Economic Research.
  3. Reamonn Lydon & Ian Walker, 2005. "Welfare to work, wages and wage growth," Fiscal Studies, Institute for Fiscal Studies, vol. 26(3), pages 335-370, September.
  4. George J. Borjas, 2000. "The Economic Progress of Immigrants," NBER Chapters,in: Issues in the Economics of Immigration, pages 15-50 National Bureau of Economic Research, Inc.
  5. Li, Gan & Jaeun, Shin & Qi, Li, 2010. "Initial Wage, Human Capital and Post Wage Differentials," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 51(2), pages 23-42, December.
  6. David Neumark, 2003. "Age Discrimination Legislation in the United States," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 297-317, 07.
  7. Mengistae, Taye, 1999. "The relative effects of skill formation and job matching on wage growth in Ethiopia," Policy Research Working Paper Series 2104, The World Bank.
  8. Zwick, Thomas, 2011. "Seniority wages and establishment characteristics," Labour Economics, Elsevier, vol. 18(6), pages 853-861.
  9. Einarsson, Tor & Marquis, Milton H., 1999. "Formal Training, On-the-Job Training and the Allocation of Time," Journal of Macroeconomics, Elsevier, vol. 21(3), pages 423-442, July.
  10. Rosemary Walker & Liviu Florea, 2014. "Easy-Come-Easy-Go: Moral Hazard in the Context of Return to Education," Journal of Business Ethics, Springer, vol. 120(2), pages 201-217, March.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4688. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.