Explaining cross-cohort differences in life-cycle earnings

Yu-Chien Kong (), B Ravikumar and Guillaume Vandenbroucke

European Economic Review, 2018, vol. 107, issue C, 157-184

Abstract: College-educated workers entering the labor market in 1940 experienced a 4-fold increase in their labor earnings between the ages of 25 and 55; in contrast, the increase was 2.6-fold for those entering the market in 1980. For workers without a college education these figures are 3.6-fold and 1.5-fold, respectively. Why are earnings profiles flatter for recent cohorts? We build a parsimonious model of schooling and human capital accumulation on the job, and calibrate it to earnings statistics of workers from the 1940 cohort. The model accounts for 99% of the flattening of earnings profiles for workers with a college education between the 1940 and the 1980 cohorts (52% for workers without a college education). The flattening in our model results from a single exogenous factor: the increasing price of skills. The higher skill price induces (i) higher college enrollment for recent cohorts and thus a change in the educational composition of workers and (ii) higher human capital at the start of work life for college-educated workers in the recent cohorts, which implies lower earnings growth over the life cycle.

Keywords: Life-cycle earnings; Flattening; Skill price; Education composition (search for similar items in EconPapers)
JEL-codes: E20 I26 J24 J31 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Explaining Cross-Cohort Differences in Life Cycle Earnings (2015)
Working Paper: Explaining Cross-Cohort Di fferences in Life Cycle Earnings (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:107:y:2018:i:c:p:157-184

DOI: 10.1016/j.euroecorev.2018.06.005

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