Human Capital Revisited: The Role of Experience and Education When Controlling for Performance and Cognitive Skills

Posted: 19 Jan 2009

Date Written: November 7, 2008

Abstract

Human capital theory predicts that differences in wages arise because of differences in human capital. The latter can be accumulated in two ways: through experience and education. Using matched firm-worker data for the Ghanaian Manufacturing sector we first test whether changes in wages over the life cycle reflect changes in performance, following the methodology of Medoff and Abraham [Medoff, J.L., & Abraham, K.G. (1980). Experience, Performance, and Earnings. Quarterly Journal of Economics, 95(4), 703-736; Medoff, J.L., & Abraham, K.G. (1981). Are Those Paid More Really More Productive? The Case of Experience. Journal of Human Resources, 16(2), 186-216].We find that wage-seniority profiles are independent of performance - a result that holds when controlling for firm fixed effects. Extending the analysis, we include a control for on-the job-training and find that it does not attenuate the seniority profile, which is also at odds with human capital theory.We do find however that firm characteristics play an important role.Wage-seniority profiles are steeper in large firms, but performance profiles are not, suggesting that the results from Medoff and Abraham are specific to large firms.We then assess the role of education. Our results confirm that education is important for the allocation to job levels.Using data on cognitive ability,we also find that the effect of education on wages is at least partially because it signals cognitive ability. We also find evidence that the returns to education are not related to performance, while the returns to cognitive ability are.

Keywords: Wage profile, Individual productivity, Performance appraisal

JEL Classification: J24, J31

Suggested Citation

Serneels, Pieter M., Human Capital Revisited: The Role of Experience and Education When Controlling for Performance and Cognitive Skills (November 7, 2008). Available at SSRN: https://ssrn.com/abstract=1297589

Pieter M. Serneels (Contact Author)

University of East Anglia (UEA) ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
446
PlumX Metrics