o Time : October 26, Friday 12:00 ~ 1:30 p.m.

o Venue : 9705(The 7th floor seminar room)


Initial wage, human capital, and post wage differentials

Abstract

Insufficiency in information with which firms judge the productivity of a worker for the first time in the market creates more randomness in intial wages in later wages. A lucky individual is to draw a high initial wage relative to the unlucky, but otherwise equivalent worker. This paper examines whether this initial luckiness can motivate the indiivdual to work harder thereafter in his career, and consequently leads to a persistent future high wage. In the model of human capital accumulation, an individual worker adjusts hours worked responding to his initial wage. The amount of accumulated human capital is proportional to the number of hours worked via the learing-by-doing. This model predicts that the initial wage is a persistently important factor having positive effect on future wages. Using data from the National Longitudinal Survey of Youth 79, we find empirical evidence that this effect is indeed positive and persists even after 20 years since the inital entry to labor market. The decomposition of initial wages show that this effect mainly is contributed by the random component, we call luckiness. It implies that the observed cross-sectional wage variation within group can be accounted for the initial randomness in wage.