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Movin on up: interpreting the earnings experience profile

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  • Manning, Alan
Abstract
Human capital theory provides the generally accepted interpretation of the relationship between earnings and labour market experience, namely that general human capital tends to increase with experience. However, there are other plausible interpretations e.g. search models generally predict that more time in the labour market increases the chance of finding a better match and hence tends to be associated with higher earnings. In this paper we show how a simple search model can be used to predict the amount of earnings growth that can be assigned to search with the residual being assigned to the human capital model. We show how a substantial if not the larger part of the rise in earnings over the life-cycle in Britain can be explained by a simple search model and that virtually all the earnings gap between men and women can be explained in this way. Overall, the evidence suggests that we do need to rethink our interpretation of the returns to experience in earnings functions.

Suggested Citation

  • Manning, Alan, 1998. "Movin on up: interpreting the earnings experience profile," LSE Research Online Documents on Economics 20294, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:20294
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    References listed on IDEAS

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    Cited by:

    1. Paul J. Devereux & Robert A. Hart, 2010. "Forced to be Rich? Returns to Compulsory Schooling in Britain," Economic Journal, Royal Economic Society, vol. 120(549), pages 1345-1364, December.
    2. Michal Myck & Gillian Paull, 2001. "The role of employment experience in explaining the gender wage gap," IFS Working Papers W01/18, Institute for Fiscal Studies.
    3. Alan Manning & Joanna Swaffield, 2008. "The gender gap in early-career wage growth," Economic Journal, Royal Economic Society, vol. 118(530), pages 983-1024, July.
    4. John G. Sessions & Nikolaos Theodoropoulos, 2014. "Tenure, Wage Profiles and Monitoring," Research in Labor Economics, in: New Analyses of Worker Well-Being, volume 38, pages 105-162, Emerald Group Publishing Limited.
    5. John Hudson & John Sessions, 2009. "The Impact of Parental Education on Earnings: New Wine in an Old Bottle?," Department of Economics Working Papers 14/09, University of Bath, Department of Economics.
    6. Fitzenberger, Bernd & Wunderlich, Gaby, 2001. "The changing gender gap across the wage distribution in the UK," ZEW Discussion Papers 01-56, ZEW - Leibniz Centre for European Economic Research.
    7. Paul Gregg & Rosanna Scutella & Claudia Vittori, 2012. "Earnings Mobility and Inequality: An Integrated Framework," The Centre for Market and Public Organisation 12/295, The Centre for Market and Public Organisation, University of Bristol, UK.
    8. Richard Barwell, 2000. "Age structure and the UK unemployment rate," Bank of England working papers 124, Bank of England.
    9. Gábor R., István, 2008. "A hiányzó láncszem? Életpálya-keresetek és keresetingadozás [The missing link? Experience-earnings profiles and earnings fluctuation]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1057-1074.
    10. Carrillo-Tudela, C, 2005. "Wage-Experience Contracts and Employment Status," Economics Discussion Papers 2733, University of Essex, Department of Economics.
    11. Ourania Karakosta & Nikos Tsakiris, 2009. "Indirect Tax Reforms and Public Goods under Imperfect Competition," University of Cyprus Working Papers in Economics 5-2009, University of Cyprus Department of Economics.

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    More about this item

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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