Demographic Change and the Return to Experience

47 Pages Posted: 23 Apr 2008

See all articles by Hyeok Jeong

Hyeok Jeong

University of Southern California - Department of Economics

Yong Kim

University of Southern California - Department of Economics

Iourii Manovskii

University of Pennsylvania - Department of Economics; IZA Institute of Labor Economics

Date Written: April 2008

Abstract

We propose and estimate a model in which changes in the demographic composition of the labor force may affect the returns to labor market experience. 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 allows for complementarity between the appropriately measured aggregate stocks of labor and experience. The parameters of the aggregate technology are identified by estimating individual earnings equations that consistently aggregate. Both time-series and cross-sectional data confirm strong experience-labor complementarity. We find that the observed demographic changes that drive the aggregate experience to labor ratio account nearly perfectly for the substantial changes in the experience premium over time.

Keywords: Experience Premium, Return to Experience, Experience-labor Complementarity, Wage Dispersion, Consistent Aggregation

JEL Classification: E24, E25, J24, J31

Suggested Citation

Jeong, Hyeok and Kim, Yong and Manovskii, Iourii, Demographic Change and the Return to Experience (April 2008). IEPR Working Paper No. 08.08. Available at SSRN: https://ssrn.com/abstract=1122963 or http://dx.doi.org/10.2139/ssrn.1122963

Hyeok Jeong (Contact Author)

University of Southern California - Department of Economics ( email )

Yong Kim

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States
213-740-2098 (Phone)

Iourii Manovskii

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-6880 (Phone)
215-573-2057 (Fax)

HOME PAGE: http://www.econ.upenn.edu/~manovski/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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