Earnings Progression, Human Capital and Incentives: Theory and Evidence

26 Pages Posted: 12 Apr 2010


The career prospects of newly recruited employees differ substantially within an organization. The stars experience a considerable growth in earnings; others can hardly maintain their entry salaries. This article sheds light on the mechanisms generating the observed heterogeneity in earnings progression by investigating the effects of on-the-job human capital acquisition, explicit short-run incentives and career concern incentives on earnings progression. The model leads to predictions about the incentive structure and the progression in both cross-sectional and individual earnings which are supported by the empirical analysis based on personnel records from a large bank.

Keywords: explicit incentives, career concern incentives, performance, earnings dynamics, personnel economics

JEL Classification: J30, J41, M50

Suggested Citation

Frederiksen, Anders, Earnings Progression, Human Capital and Incentives: Theory and Evidence. IZA Discussion Paper No. 4863. Available at SSRN: https://ssrn.com/abstract=1587556

Anders Frederiksen (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072

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