Age, Experience, and Wage Growth.

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    • Abstract:
      The article focuses on the relationship between an individual's wage growth pattern and his employment history. If, as the human capital framework suggests, individuals increase their wealth by investing in on-the-job training, one might expect workers who spend less time on the job during a given period of time to acquire less human capital. Thus, it is expected that the growth rate of wages will be related not simply to an individual's chronological age, but also to the amount of time spent on the job during the period under consideration. If this is in fact the case, then part of the opportunity cost of being unemployed consists of a non-measured human capital component of the wage rate. The total cost of unemployment is then the sum of foregone observed earnings plus the value of the unobserved payment of human capital. By calculating the amount of human capital investment foregone during periods of unemployment, an estimate of the importance of on-the-job training is obtained. It was found that young workers receive approximately one-third of their total employment compensation in the form of human capital. The effect of current work experience on wage growth is therefore substantial.