Volume 30, Number 1 (Winter) 1995
Hellerstein, Judith K., and David Neumark. 1995. "Are Earnings Profiles Steeper than Productivity Profiles? Evidence from Israeli Firm-Level Data." Journal of Human Resources 30(1):89-112.
We test competing explanations of rising age-earnings profiles by obtaining direct estimates of marginal productivity differentials between workers in different age groups and comparing these to associated earnings differentials, using contemporary data from Israeli manufacturing firms. The results indicate that, controlling for other productive inputs and firm characteristics, for the unskilled or less-skilled workers who represent most of the workers in our sample, both earnings and productivity profiles are upward sloping. Moreover, these profiles mirror each other closely, and are statistically indistinguishable. However, the estimates of the profiles are sufficiently imprecise that even sizable deviations between point estimates of earnings growth and productivity growth would not be statistically significant. While we view the results as most consistent with a general human capital model of rising earnings profiles over the life cycle, there is not strong evidence with which to reject alternative models.
Judith K. Hellerstein is an assistant professor of economics at Northwestern University, faculty fellow of the CUAPR at Northwestern, and faculty research fellow of the national Bureau of Economics. David Neumark is a professor of economics at Michigan State University, and a faculty research fellow of the NBER. The editor and anonymous referees provided helpful comments. The authors thank Haim Regev and the Central Bureau of Statistics for providing the data, Yona Rubinstein for assistance with the Income Survey, the Maurice Falk Institute and the Bradley Foundation for financial support, and the central Bureau of Statistics, Falk Institute, and NBER for help with data, computing, and facilities. Neumark's research was partially supported by NSF grant SES92-09575, the University of Pennsylvania Research Foundation, the NIA, and the Boettner Institute of Financial Gerontology. The data used in this paper are extracted from a larger data set constructed by Israel's Central Bureau of Statistics. A confidentiality agreement precludes the authors from releasing any of the data. Further information may be obtained by contacting Mr. Haim Regev, Central Bureau of Statistics, HaKirya Romema, Jerusalem, Israel 91130.
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