Can Productive Capacity Differentials Really Explain Earnings Differentials Associated with Demographic Characteristics? Case of Experience

62 Pages Posted: 22 Feb 2001 Last revised: 1 Jul 2021

See all articles by James L. Medoff

James L. Medoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Katharine G. Abraham

University of Maryland - Joint Program in Survey Methodology and Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1979

Abstract

This study uses computerized personnel microdata on the white male managerial and professional employees at a major U.S. corporation to address the following question: Can the additional earnings which are associated with more labor market experience at a point in time really be explained by higher productivity at the same point in time? Our answer to this question, based on both cross-sectional and longitudinal information, is that performance plays a substantially smaller role in explaining cross-sectional experience-earnings differentials and earnings growth than is claimed by those who have adopted the human capital explanation of the experience-earnings profile. This response depends critically on our assumption that the performance ratings which supervisors give to their white male managerial and professional subordinates adequately reflect the subordinates' relative productivity in the year of assessment; we present a great deal of evidence which strongly supports this assumption.

Suggested Citation

Medoff, James L. and Abraham, Katharine G., Can Productive Capacity Differentials Really Explain Earnings Differentials Associated with Demographic Characteristics? Case of Experience (June 1979). NBER Working Paper No. w0363, Available at SSRN: https://ssrn.com/abstract=261217

James L. Medoff (Contact Author)

Harvard University - Department of Economics ( email )

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Katharine G. Abraham

University of Maryland - Joint Program in Survey Methodology and Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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