Life-cycle Earnings Research Articles

Time effects in earnings of faculty members

Empirical analyses of salary discrimination among university faculty members typically use data from a single cross-section. However, if earnings profiles exhibit instability over time, comparison of individuals from a cross-section will not reflect actual life-cycle earnings differences. In this paper we compare relative earnings by sex estimated from cross-section and longitudinal data samples. The results indicate substantial differences in estimated male-female salary ratios.

Changes in Life-Cycle Earnings: What Do Social Security Data Show?

A matched sample of Social Security and Current Population Survey records is used to examine life-cycle earnings patterns of white males over the 1951-1976 period. Estimated direct effects of schooling and experience compare well with other studies, but interaction effects with cohort do not. Younger cohorts exhibit smaller marginal returns to schooling and larger marginal returns to experience, but differences between cohorts are very small. When demographic factors, namely, veteran status, are controlled, direct cohort effects are linear in these data and show no tendency to vary with cohort size.

The Use of Cross-Section Microdata in Life Cycle Models: An Application to Inequality Theory in Nonstationary Economies

This paper examines the appropriate use of cross-section microdata in life cycle models. Drawing upon recent empirical work based upon panel data, we illustrate how these results can be used as priors to generate a distribution of life cycle earnings. Such a surrogate distribution can be shown to possess the same properties as actual distributions. We focus attention particularly upon the treatment of economic growth and the unobservable components of earnings. In the final section of the paper, we show how such distributions might be used in inequality analysis.

How Do Human Capital Investors Form Earnings Expectations?

The net capital value of life-cycle earnings is widely considered to index the economic attractiveness of alternative careers. This basic idea is fundamental to a rich and varied empirical literature ranging across such issues as the distribution of income, the demand for higher education and the theory of occupational choice. Estimates of the attractiveness or expected profitability of human capital investments invariably employ some variant of current earnings as a measure of earnings. Implicitly these estimates assume that the market for human capital is efficient in the sense that all current information is reflected in these earnings. They are treated as unbiased estimates of future earnings. Unlike markets in securities and some commodities, however, there is good reason to expect that here current prices are not the best estimates of future prices. Interperiod arbitrage in labor services is too costly to have much of an equalizing effect on prices at different dates. As Freeman [3] has shown, a lagged adjustment to current earnings, as may occur for lengthy investment periods like those for higher education, can produce cycles in earnings. These earnings cycles can then feed back to suppliers of training, by introducing severe variability in the demands for their services. Such a cyclical pattern need not necessarily occur, however. Even if demanders of training do not have sophisticated expectations about earnings cycles in their chosen career, suppliers of this training are quite likely to learn of these patterns. They should therefore be reluctant to adjust their capacity slavishly to accommodate these cycles. We thus might expect the behavior of suppliers to act as a dampener on the variability of this type of human capital investment. The greater the costs of adjusting capacity to accommodate demand cycles, the more inflexible, over time, will be the supply of this training. In addition, the intensity of the cycles in the production of human capital will depend on the sophistication of the demanders. While lagged adjustment to spot prices can produce the cycles described, demanders have incentives to forecast future market conditions, thus mitigating such cycles. Although Freeman's [3] results support indirectly the hypothesis that

Organizational Career Mobility: Promotion Chances in a Corporation During Periods of Growth and Contraction

This study analyzes the age distribution of upward mobility in a large corporation, examining changes in the age-promotion relationship for different levels in the organizational hierarchly, for different kinds of employess, and across time periods of increasing and creasing organizational growth. Analyzing the corporation's complete personnel records over three times periods, this paper test a precipitous-decline hypothesis derived from the organizational careers literature, an exponential-decline hypothesis derived from the Markov literature on career mobility, and an increase-decrease hipothesis derived from the economic literature on life-cycle earnings patterns. Analysis finds partial support for each hypothesis for different groups of employees. It also finds remarkable stability in these patterns across periods, particularly for the most and least favored groups; the changes which do occur tend to "spillover" to specific stadby age-education groups. The age-promotion curves and the spillover patterns are explained in terms of a new efficiency-motivation model of organizational mobility. Finally, analysis indicates that these age effects seem to persist after controlling for years of service. The implications of these findings for organizational selection systems and for career and life-cycle phenomena are considered.

Dynamic Aspects of Earning Mobility

This paper proposes an econometric methodology to deal with life cycle earnings and mobility among discrete earnings classes. First, we use panel data on male log earnings to estimate an earnings function with permanent and serially correlated transitory components due to both measured and unmeasured variables. Assuming that the error components are normally distributed, we develop statements for the probability that an individual's earnings will fall into a particular but arbitrary time sequence of poverty states. Using these statements, we illustrate the implications of our earnings model for poverty dynamics and compare our approach to Markov chain models of income mobility.(This abstract was borrowed from another version of this item.)