Learning and wage dynamics

Henry S. Farber, Robert Gibbons

Research output: Contribution to journalArticle

247 Scopus citations

Abstract

We develop a dynamic model of learning about worker ability in a competitive labor market. The model produces three testable implications regarding wage dynamics: (1) although the role of schooling in the labor market's inference process declines as performance observations accumulate, the estimated effect of schooling on the level of wages is independent of labor-market experience; (2) time-invariant variables correlated with ability but unobserved by employers (such as certain test scores) are increasingly correlated with wages as experience increases; and (3) wage residuals are a martingale. We present evidence from the NLSY that is broadly consistent with the model's predictions.

Original languageEnglish (US)
Pages (from-to)1006-1047
Number of pages42
JournalQuarterly Journal of Economics
Volume111
Issue number4
DOIs
StatePublished - Nov 1996

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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