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The Contributions of Search and Human Capital to Earnings Growth Over the Life Cycle

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Abstract

This paper presents and estimates a unified model where both human capital investment and job search are endogenized. This unification enables us to quantify the relative contributions of each mechanism to life cycle earnings growth, while investigating potential interactions between human capital investment and job search. Within the unified framework, the expectation of rising rental rates of human capital through job search gives workers more incentive to invest in human capital. In addition, unemployed workers reduce their reservation rental rates and increase their search effort to leave unemployment quickly to take advantage of human capital accumulation on the job. The results show both forces are important for earnings growth and the interactions are substantial: human capital accumulation accounts for 31% of total earnings growth, job search accounts for 46%, and the remaining 23% is due to the interactions of the two.

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  • Audra J. Bowlus & Huju Liu, 2012. "The Contributions of Search and Human Capital to Earnings Growth Over the Life Cycle," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20122, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
  • Handle: RePEc:uwo:hcuwoc:20122
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    Cited by:

    1. Carlos Carrillo-Tudela, 2010. "Job Search, Human Capital and Wage Inequality," 2010 Meeting Papers 723, Society for Economic Dynamics.
    2. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2016. "Wage Inequality: A Structural Decomposition," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 20-37, January.
    3. Ronni Pavan, 2011. "Career Choice and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 29(3), pages 549-587.
    4. Benjamin Griffy, 2018. "Borrowing Constraints, Search, and Life-Cycle Inequality," Discussion Papers 18-01, University at Albany, SUNY, Department of Economics.
    5. Guyonne Kalb & Jordy Meekes, 2021. "Wage Growth Distribution and Changes over Time: 2001–2018," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(1), pages 76-93, March.
    6. Vejlin, Rune Majlund & Veramendi, Gregory, 2019. "Sufficient Statistics for Frictional Wage Dispersion and Growth," IZA Discussion Papers 12387, Institute of Labor Economics (IZA).
    7. Audra J. Bowlus & Masashi Miyairi & Chris Robinson, 2016. "Immigrant job search assimilation in Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 5-51, February.
    8. Victoria Gregory, 2020. "Firms as Learning Environments: Implications for Earnings Dynamics and Job Search," Working Papers 2020-036, Federal Reserve Bank of St. Louis, revised 28 Jan 2021.
    9. Ken Burdett & Carlos Carrillo-Tudela & Melvyn Coles, 2015. "Wage Inequality," Working Papers 2015-42, Peruvian Economic Association.
    10. Abel, Jaison R. & Deitz, Richard, 2015. "Agglomeration and job matching among college graduates," Regional Science and Urban Economics, Elsevier, vol. 51(C), pages 14-24.
    11. Bernabe Lopez-Martin & Naoki Takayama, 2015. "The Blighted Youth: The Impact of Recessions and Policies on Life-Cycle Unemployment," Working Papers 2015-22, Banco de México.
    12. Guyonne Kalb & Jordy Meekes, 2019. "Wage Growth Distribution and Decline among Individuals: 2001-2017," RBA Annual Conference Papers acp2019-03, Reserve Bank of Australia, revised Jul 2019.
    13. Magnac, Thierry & Roux, Sébastien, 2019. "Heterogeneity and Wage Inequalities over the Life Cycle," TSE Working Papers 19-1041, Toulouse School of Economics (TSE), revised Mar 2021.
    14. Kalb, Guyonne & Meekes, Jordy, 2020. "Wage Growth Distribution and Changes over Time: 2001-2018," IZA Discussion Papers 13327, Institute of Labor Economics (IZA).
    15. Cordoba, Juan C. & Isojärvi, Anni & Li, Haoran, 2020. "Equilibrium Unemployment: The Role Of Discrimination," ISU General Staff Papers 202011140800001116, Iowa State University, Department of Economics.

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    More about this item

    Keywords

    Human Capital; Job Search; Life Cycle; Earnings Growth;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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