The Price of Experience
68 Pages Posted: 17 Dec 2012
Date Written: December 13, 2012
We identify a key role of factor supply, driven by demographic changes, in shaping several empirical regularities that are a focus of active research in macro and labor economics. In particular, the large movements of the return to experience over the last four decades are almost perfectly explained by demographic changes alone, with no role attributable to demand shifts. Moreover, these demographic changes account for the differential dynamics of the age premium across education groups emphasized by Katz and Murphy (1992), and the differential dynamics of the college premium across age groups emphasized by Card and Lemieux (2001).
Keywords: Experience Premium, Return to Experience, Wage Dispersion, Consistent
JEL Classification: E24, E25, J24, J31
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