The Effect Interruptions in Work Experience Have on Wages

Abstract

Individuals who interrupt their employment are generally expected to pay a price in the workplace [15]. Most researchers acknowledge that wages rise more rapidly with time spent in paid employment than with time spent in other noneducational activities. Thus, the wages received by individuals reentering employment are expected to be below those obtained by similar individuals with continuous work records. How far below, is still a matter of debate.' One important line of research has focused upon the difference between pre-interruption and post-interruption wages. Specifically, do real wages rise, fall, or remain unchanged during periods of nonemployment? Two findings stand out from past research. First, a wide variety of studies employing a wide variety of data sets have found that wages fall during periods of nonemployment. The estimated decline ranges from 0.6% to over 5% annually, but averages around 2%. Second, this estimated depreciation rate is higher when the sample under investigation contains a greater proportion of recent reentrants. Thus, there is a pattern to the estimates. The purpose of this study is to investigate the observed sensitivity to sample composition. In the past such sample sensitivity has been attributed to a rapid depreciation followed by a rebound in wages that over time partially offsets the initial decline. If true, the depreciation rate will be underestimated, especially if the data include few recent reentrants. Two alternative hypotheses are tested in this study. The first relies upon certain assumptions regarding part-time employment patterns and wages. If part-time workers are paid less than full-time workers, and if part-time employment is more common following reentry because it is used as a bridge to full-time employment, then estimates of the depreciation rate will be biased upward particularly when obtained from samples of recent reentrants, if information on hours worked is ignored. There may, in fact, be no depreciation at all. Results indicate that while part-time workers are paid less than full-time workers, estimates