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Applied Microeconomics Group Seminar Education, Wage Growth, and On-the-Job Learning

Speaker: Professor David Deming, Kennedy School, Harvard University and NBER

Abstract: Wage growth varies enormously across workers and countries, suggesting that work experience is at least as important as schooling for explaining income differences. This paper establishes four facts about wage growth using a panel survey of U.S. workers followed through age 60. First, wages increase steadily with work experience throughout the life cycle. Second, wage growth is faster for educated workers, implying that the college wage premium is increasing in work experience. Third, wage growth differs greatly by occupation, with slower growth in routine jobs. Fourth, educated workers sort into nonroutine jobs. To understand these patterns, I develop a modified Ben-Porath (1967) model of human capital investment where workers differ in learning ability and jobs vary in complexity. Faster learners invest more in human capital, both in school and on-the-job. In the model, the college wage premium is jointly determined by occupational sorting and by increasing returns to scale in learning over the life cycle.

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