Volume 20, Number 4 (Fall) 1985
Garen, John. 1985. "The Trade-Off Between Wages and Wage Growth." Journal of Human Resources 20(4):522-539.
This paper tests the theory of compensating differentials by estimating the sacrifice in current earnings necessary to acquire employment leading to future wage growth. Utilizing longitudinal data, the predicted value of each individual's actual wage growth subsequent to the current period is related to the current wage. The results indicate a strong, inverse relationship between current earnings and the amount of future wage growth "purchased." The magnitude of this trade-off between current and future earnings varies with schooling, as does the total amount of current earnings capacity invested in wage growth. These findings are then compared to related results in the human capital production function literature.
The author is Assistant Professor of Economics, University of Kentucky.
I wish to thank Dan Black, John Owen, and an anonymous
referee for providing useful comments. An earlier version of this paper was
presented at the 1984 Western Economic Association meetings. Some of this work
was done while I was at Wayne State University. I am solely responsible for any
errors.
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