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Title: Why Do Wage Profiles Slope Upwards? Tests of the General Human Capital Model
Resulting in 1 citation.
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Neumark, David B. Taubman, Paul |
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Why Do Wage Profiles Slope Upwards? Tests of the General Human Capital Model NBER Working Paper No. 4688, National Bureau of Economic Research, March 1994. Also: http://nber.nber.org/papers/W4688 Cohort(s): NLSY79 Publisher: National Bureau of Economic Research (NBER) Keyword(s): Human Capital Theory; Wage Growth; Wage Levels; Wage Theory; Work Experience This paper presents tests of the Lazear contract, human capital, and forced-saving explanations of rising wage profiles. The human capital model of general investment implies that the ratio of the present value of the earnings stream of investors to that of non-investors equals one. In contrast, the Lazear model implies that the ratio of the present value of the earnings stream for those on rising profiles to those on flat profiles exceeds one, while the forced-saving model implies that this ratio is below one. One test exploits a weaker form of this implication, that those with higher rates of growth of wages, all else the same, have lower initial wages. The forced-saving hypothesis also predicts a negative correlation between wage levels and rates of growth, while the Lazear model could generate a positive correlation. The evidence points to a correlation that is either positive or zero, consistent with the Lazear model but neither the human capital nor the forced-saving model. A second test makes direct use of the implications for present values. Under a variety of assumptions regarding discount rates and wage equation specifications, the results provide no evidence consistent with the forced-saving hypothesis, unless discount rates are near zero. But the calculations are somewhat inconclusive regarding the human capital and Lazear hypotheses; each receives some support depending on the assumed discount rate and wage equation specification. Nonetheless, under a variety of assumptions this test provides evidence supporting the Lazear hypothesis. |
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Bibliography Citation
Neumark, David B. and Paul Taubman. "Why Do Wage Profiles Slope Upwards? Tests of the General Human Capital Model." NBER Working Paper No. 4688, National Bureau of Economic Research, March 1994. |