Interrupted Work Careers: Depreciation and Restoration of Human Capital

Abstract

The quantitative effects and even the existence of a capital phenomenon have been a subject of controversy in the recent literature. Prior work, however, was largely cross-sectional and the longitudinal dimension, if any, was retrospective. Using longitudinal panel data (on married women in NLS) we have now established that real wages at reentry are, indeed, lower than at the point of labor force withdrawal, and the decline in wages is greater, the longer the interruption. Another striking finding is a relatively rapid growth in wages after the return to work. This rapid growth appears to reflect the (or repair) of previously eroded human capital. The phenomenon of depreciation and restoration is also visible in data for immigrants to the United States. However, while immigrants eventually catch up with and often surpass natives, returnees from the nonmarket do not fully restore their earnings potential.