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The Importance of Obtaining a High-Paying Job

  • Devereux, Paul J.

Given the high level of job mobility in the United States, one might think that obtaining a low-paying job would have only temporary consequences. However, using longitudinal data, I find that state dependence in wages is large and persistent. If two comparable individuals start jobs that pay a different wage, about 60% of the wage differential is still present four years later. Moreover, about 50% of the wage differential is still present for workers who have switched employers during that period. The results indicate that the jobs acquired by individuals have long- term effects on their future careers. I also examine the mechanisms that lead to state dependence. In a stigma model, prospective employers use wages as a signal of ability. Thus, getting a poor job can lead the market to believe that an individual has low ability. In the learning-by-doing model, workers who get high-paying jobs also attain greater opportunities to acquire human capital. The evidence suggests that both stigma and learning by doing models contribute to state dependence in wages.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49326.

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Date of creation: Jan 2002
Date of revision:
Handle: RePEc:pra:mprapa:49326
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  1. Jacob Mincer, 1988. "Job Training, Wage Growth, and Labor Turnover," NBER Working Papers 2690, National Bureau of Economic Research, Inc.
  2. Joseph G. Altonji & James R. Spletzer, 1991. "Worker Characteristics, Job Characteristics, and the Receipt of On-the-Job Training," ILR Review, Cornell University, ILR School, vol. 45(1), pages 58-79, October.
  3. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  4. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-88, August.
  5. Parent, Daniel, 2002. "Matching, human capital, and the covariance structure of earnings," Labour Economics, Elsevier, vol. 9(3), pages 375-404, July.
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  7. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics.
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  10. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
  11. John M. Abowd & David Card, 1986. "On the Covariance Structure of Earnings and Hours Changes," NBER Working Papers 1832, National Bureau of Economic Research, Inc.
  12. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April.
  13. repec:oup:restud:v:54:y:1987:i:3:p:437-59 is not listed on IDEAS
  14. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  15. Hause, John C, 1980. "The Fine Structure of Earnings and the On-the-Job Training Hypothesis," Econometrica, Econometric Society, vol. 48(4), pages 1013-29, May.
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  17. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  18. Kearl, J R, 1988. "The Covariance Structure of Earnings and Income, Compensatory Behavior, and On-the-Job Investments," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 214-23, May.
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  20. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
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