Life Cycle Wage Growth in a Developing Economy: Employment Formality and Sector-Specific Human Capital Accumulation

Minchung Hsu () and Samuel Leyton ()
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Minchung Hsu: National Graduate Institute for Policy Studies, Tokyo, Japan
Samuel Leyton: Sophia University, Tokyo, Japan

No 25-14, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: This study builds on recent research on international comparisons of wage-experience profiles (eg. Lagakos et al., 2018, and Jedwab et al., 2023), which finds that wage growth is significantly lower in developing economies. We aim to provide a deeper insight into this issue. Using rich longitudinal data from Chile, the Social Protection Survey (EPS) linked to administrative pension contribution records, we construct precise measures of formal and informal work experience and estimate their distinct contributions to wage dynamics. This dataset, the longest available panel for a developing country, allows for a detailed analysis of how sector-specific experiences influence life-cycle wage growth. We undertake a life-cycle framework with human capital accumulation to guide our empirical strategy. We find that both the speed of human capital accumulation and the return to human capital are significantly lower with informal employment, while the wage growth with formal employment experience is comparable to that in developed economies. We also find that workers in formal jobs are far more likely to receive on-the-job training, helping to explain the divergence in human capital accumulation across sectors. Furthermore, the estimation framework provides a foundation for structural life-cycle models that incorporate sector-specific human capital accumulation and endogenous employment transitions between formal and informal sectors.

Keywords: Labor informality; life-cycle wage growth; human capital (search for similar items in EconPapers)
Pages: 46 pages
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:ngi:dpaper:25-14

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