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Demographic Change and the Return to Experience


  • Yong Kim

    (University of Southern California)

  • Iourii Manovskii

    (University of Pennsylvania)

  • Hyeok Jeong

    (Vanderbilt University)


We document an almost perfect negative correlation between the returns to experience and the average experience per worker in the labor market. We provide a model that rationalizes this finding. We consider workers as providing two distinct productive services - physical effort, or ``labor,'' and services of the skill accumulated with labor market experience, or ``experience.'' The key element in the model is the aggregate production function that features complementarity between the appropriately measured stocks of labor and experience. We identify parameters of the aggregate technology by estimating individual earnings equations that consistently aggregate. We find that the observed demographic changes that drive the aggregate experience to labor ratio account nearly perfectly for the substantial changes in experience premium over time.

Suggested Citation

  • Yong Kim & Iourii Manovskii & Hyeok Jeong, 2008. "Demographic Change and the Return to Experience," 2008 Meeting Papers 1083, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:1083

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