Learning and Wage Dynamics

56 Pages Posted: 8 Jun 2004 Last revised: 8 Mar 2010

See all articles by Henry S. Farber

Henry S. Farber

Princeton University; National Bureau of Economic Research (NBER)

Robert S. Gibbons

Massachusetts Institute of Technology - Sloan School and Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 1991

Abstract

We develop a dynamic model of learning and wage determination: education may convey initial information about ability, but subsequent performance observations also are informative. Although the role of schooling in the labor market's inference process declines as performance observations accumulate, the estimated effect of schooling on the level of wages is independent of labor-market experience. In addition: time-invariant variables correlated with ability but unobserved by employers are increasingly correlated with wages as experience increases; wage residuals are a martingale; and wage cuts -are not rare, even for workers who do not change jobs. We present evidence from the National Longitudinal Survey of Youth that is generally consistent with all four of the model's predictions. We conclude that a blend of the learning model with an on-the-job-training model is more plausible than either model alone.

Suggested Citation

Farber, Henry S. and Gibbons, Robert S., Learning and Wage Dynamics (July 1991). NBER Working Paper No. w3764. Available at SSRN: https://ssrn.com/abstract=420289

Henry S. Farber (Contact Author)

Princeton University ( email )

Industrial Relations Section
Firestone Library
Princeton, NJ 08544
United States
609-258-4044 (Phone)
609-258-2907 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Robert S. Gibbons

Massachusetts Institute of Technology - Sloan School and Department of Economics ( email )

E52-432
MIT
Cambridge, MA 02142
United States
617-253-0283 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
109
Abstract Views
1,472
rank
250,080
PlumX Metrics