IDEAS home Printed from https://ideas.repec.org/a/eee/labeco/v15y2008i6p1143-1161.html
   My bibliography  Save this article

Human capital revisited: The role of experience and education when controlling for performance and cognitive skills

Author

Listed:
  • Serneels, Pieter

Abstract

Human capital theory predicts that differences in wages arise because of differences in human capital. The latter can be accumulated in two ways: through experience and education. Using matched firm-worker data for the Ghanaian Manufacturing sector we first test whether changes in wages over the life cycle reflect changes in performance, following the methodology of Medoff and Abraham [Medoff, J.L., & Abraham, K.G. (1980). Experience, Performance, and Earnings. Quarterly Journal of Economics, 95(4), 703-736; Medoff, J.L., & Abraham, K.G. (1981). Are Those Paid More Really More Productive? The Case of Experience. Journal of Human Resources, 16(2), 186-216]. We find that wage-seniority profiles are independent of performance - a result that holds when controlling for firm fixed effects. Extending the analysis, we include a control for on-the-job-training and find that it does not attenuate the seniority profile, which is also at odds with human capital theory. We do find however that firm characteristics play an important role. Wage-seniority profiles are steeper in large firms, but performance profiles are not, suggesting that the results from Medoff and Abraham are specific to large firms. We then assess the role of education. Our results confirm that education is important for the allocation to job levels. Using data on cognitive ability, we also find that the effect of education on wages is at least partially because it signals cognitive ability. We also find evidence that the returns to education are not related to performance, while the returns to cognitive ability are.

Suggested Citation

  • Serneels, Pieter, 2008. "Human capital revisited: The role of experience and education when controlling for performance and cognitive skills," Labour Economics, Elsevier, vol. 15(6), pages 1143-1161, December.
    • Handle: RePEc:eee:labeco:v:15:y:2008:i:6:p:1143-1161
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927-5371(07)00108-X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Van Biesebroeck, Johannes, 2005. "Firm Size Matters: Growth and Productivity Growth in African Manufacturing," Economic Development and Cultural Change, University of Chicago Press, vol. 53(3), pages 545-583, April.
    2. Dohmen, Thomas J., 2004. "Performance, seniority, and wages: formal salary systems and individual earnings profiles," Labour Economics, Elsevier, vol. 11(6), pages 741-763, December.
    3. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
    4. Jones, Patricia, 2001. "Are educated workers really more productive?," Journal of Development Economics, Elsevier, vol. 64(1), pages 57-79, February.
    5. George Psacharopoulos & Harry Anthony Patrinos, 2004. "Returns to investment in education: a further update," Education Economics, Taylor & Francis Journals, vol. 12(2), pages 111-134.
    6. Appleton, Simon & Hoddinott, John & Krishnan, Pramila, 1999. "The Gender Wage Gap in Three African Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 47(2), pages 289-312, January.
    7. Brown, James N, 1989. "Why Do Wages Increase with Tenure? On-the-Job Training and Life-Cycle Wage Growth Observed within Firms," American Economic Review, American Economic Association, vol. 79(5), pages 971-991, December.
    8. Soderbom, Mans & Teal, Francis & Harding, Alan, 2006. "The Determinants of Survival among African Manufacturing Firms," Economic Development and Cultural Change, University of Chicago Press, vol. 54(3), pages 533-555, April.
    9. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2007. "Incentives for Managers and Inequality among Workers: Evidence from a Firm-Level Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 729-773.
    10. Felli, Leonardo & Harris, Christopher, 1996. "Learning, Wage Dynamics, and Firm-Specific Human Capital," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 838-868, August.
    11. Glewwe, Paul, 1996. "The relevance of standard estimates of rates of return to schooling for education policy: A critical assessment," Journal of Development Economics, Elsevier, vol. 51(2), pages 267-290, December.
    12. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(4), pages 703-736.
    13. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    14. Marcel Fafchamps & Mans Söderbom & Najy Benhassine, 2009. "Wage Gaps and Job Sorting in African Manufacturing," Journal of African Economies, Centre for the Study of African Economies, vol. 18(5), pages 824-868, November.
    15. Måns Söderbom & Francis Teal, 2001. "Firm size and human capital as determinants of productivity and earnings," CSAE Working Paper Series 2001-09, Centre for the Study of African Economies, University of Oxford.
    16. Melissa Osborne & Herbert Gintis & Samuel Bowles, 2001. "The Determinants of Earnings: A Behavioral Approach," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1137-1176, December.
    17. Bigsten, Arne & Isaksson, Anders & Söderbom, Måns & Collier, Paul & Zeufack, Albert & Dercon, Stefan & Fafchamps, Marcel & Gunning, Jan Willem & Teal, Francis & Appleton, Simon & Gauthier, Bernard & O, 2000. "Rates of Return on Physical and Human Capital in Africa's Manufacturing Sector," Economic Development and Cultural Change, University of Chicago Press, vol. 48(4), pages 801-827, July.
    18. Joseph G. Altonji & Robert A. Shakotko, 1987. "Do Wages Rise with Job Seniority?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(3), pages 437-459.
    19. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-176, February.
    20. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    21. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-297, June.
    22. Peter J. Klenow & Mark Bils, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December.
    23. Hellerstein, Judith K & Neumark, David & Troske, Kenneth R, 1999. "Wages, Productivity, and Worker Characteristics: Evidence from Plant-Level Production Functions and Wage Equations," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 409-446, July.
    24. Murnane, Richard J & Willett, John B & Levy, Frank, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 251-266, May.
    25. Flabbi, Luca & Ichino, Andrea, 2001. "Productivity, seniority and wages: new evidence from personnel data," Labour Economics, Elsevier, vol. 8(3), pages 359-387, June.
    26. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    27. Teal, Francis, 2000. "Real wages and the demand for skilled and unskilled male labour in Ghana's manufacturing sector: 1991-1995," Journal of Development Economics, Elsevier, vol. 61(2), pages 447-461, April.
    28. John Cawley & James Heckman & Edward Vytlacil, 1998. "Understanding the Role of Cognitive Ability in Accounting for the Recent Rise in the Economic Return to Education," NBER Working Papers 6388, National Bureau of Economic Research, Inc.
    29. repec:bla:scandj:v:87:y:1985:i:2:p:160-93 is not listed on IDEAS
    30. Basu, Kaushik & Foster, James E, 1998. "On Measuring Literacy," Economic Journal, Royal Economic Society, vol. 108(451), pages 1733-1749, November.
    31. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
    32. Bishop, John, 1987. "The Recognition and Reward of Employee Performance," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 36-56, October.
    33. Måns Söderbom & Francis Teal & Anthony Wambugu & Godius Kahyarara, 2006. "The Dynamics of Returns to Education in Kenyan and Tanzanian Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(3), pages 261-288, June.
    34. Boissiere, M & Knight, J B & Sabot, R H, 1985. "Earnings, Schooling, Ability, and Cognitive Skills," American Economic Review, American Economic Association, vol. 75(5), pages 1016-1030, December.
    35. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
    36. repec:fth:oxesaf:2001-9 is not listed on IDEAS
    37. Magnac, Th, 1991. "Segmented or Competitive Labor Markets," Econometrica, Econometric Society, vol. 59(1), pages 165-187, January.
    38. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
    39. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sébastien Michiels & Christophe Jalil Nordman & Suneha Seetahul, 2021. "Many Rivers to Cross: Social Identity, Cognition, and Labor Mobility in Rural India," The ANNALS of the American Academy of Political and Social Science, , vol. 697(1), pages 66-80, September.
    2. Larry Howard & Thomas Tang & M. Jill Austin, 2015. "Teaching Critical Thinking Skills: Ability, Motivation, Intervention, and the Pygmalion Effect," Journal of Business Ethics, Springer, vol. 128(1), pages 133-147, April.
    3. ONISHI Koichiro & NAGAOKA Sadao, 2012. "Life-cycle Productivity of Industrial Inventors: Education and other determinants," Discussion papers 12059, Research Institute of Economy, Trade and Industry (RIETI).
    4. Ruchita Pangriya, 2019. "Hidden aspects of social entrepreneurs’ life: a content analysis," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 9(1), pages 1-19, December.
    5. Yamada, Shoko, 2023. "Constructivist analysis of cross-sectional data on varieties of skills: Contextualities and generalities of skills packages and rewards to them in Ghana and Ethiopia," International Journal of Educational Development, Elsevier, vol. 102(C).
    6. Hayek, Mario & Thomas, Christopher H. & Novicevic, Milorad M. & Montalvo, Daniel, 2016. "Contextualizing human capital theory in a non-Western setting: Testing the pay-for-performance assumption," Journal of Business Research, Elsevier, vol. 69(2), pages 928-935.
    7. PURCAREA, Irina, 2015. "Cultural entrepreneurship. The importance of developing cultural competences within the framework of resource mobilization," Holistic Marketing Management Journal, Holistic Marketing Management, vol. 5(4), pages 15-21, December.
    8. Nuno Crespo & Nádia Simões & José Castro Pinto, 2013. "Determinant factors of job quality in Europe," Working Papers Series 2 13-01, ISCTE-IUL, Business Research Unit (BRU-IUL).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paul Hek & Daniel Vuuren, 2011. "Are older workers overpaid? A literature review," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 436-460, August.
    2. Pieter Serneels, 2005. "Do Wages reflect Productivity?," Economics Series Working Papers GPRG-WPS-029, University of Oxford, Department of Economics.
    3. Flabbi, Luca & Ichino, Andrea, 2001. "Productivity, seniority and wages: new evidence from personnel data," Labour Economics, Elsevier, vol. 8(3), pages 359-387, June.
    4. Dohmen, Thomas J., 2004. "Performance, seniority, and wages: formal salary systems and individual earnings profiles," Labour Economics, Elsevier, vol. 11(6), pages 741-763, December.
    5. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Maia Güell, 2010. "Is seniority-based pay used as a motivational device? Evidence from plant-level data," Research in Labor Economics, in: Jobs, Training, and Worker Well-being, pages 155-187, Emerald Group Publishing Limited.
    6. Christian Pfeifer, 2009. "Adjustment of Deferred Compensation Schemes, Fairness Concerns, and Hiring of Older Workers," Working Paper Series in Economics 151, University of Lüneburg, Institute of Economics.
    7. Parent, Daniel, 1999. "Wages and Mobility: The Impact of Employer-Provided Training," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 298-317, April.
    8. Parent, Daniel, 1996. "Survol des contributions théoriques et empiriques liées au capital humain," L'Actualité Economique, Société Canadienne de Science Economique, vol. 72(3), pages 315-356, septembre.
    9. Vincenzo SPIEZIA, 2002. "The greying population: A wasted human capital or just a social liability?," International Labour Review, International Labour Organization, vol. 141(1-2), pages 71-113, March.
    10. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    11. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    12. Pfeifer, Christian, 2009. "An Intra-Firm Perspective on Wage Profiles and Employment of Older Workers with Special Reference to Human Capital and Deferred Compensation," Hannover Economic Papers (HEP) dp-413, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    13. Alberto Bayo-Moriones, 2001. "Seniority-based pay: is it used as a motivation device?," Working Papers 0103, Departament Empresa, Universitat Autònoma de Barcelona, revised May 2001.
    14. Eric A. Hanushek & Ludger Woessmann, 2008. "The Role of Cognitive Skills in Economic Development," Journal of Economic Literature, American Economic Association, vol. 46(3), pages 607-668, September.
    15. William J. Moore & Robert J. Newman & Geoffrey K. Turnbull, 2002. "The Experience-Earnings Profile: Productivity-Augmenting or Purely Contractual?," Departmental Working Papers 2002-13, Department of Economics, Louisiana State University.
    16. Vegard Skirbekk, 2004. "Age and Individual Productivity: A Literature Survey," Vienna Yearbook of Population Research, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna, vol. 2(1), pages 133-154.
    17. Van Biesebroeck, Johannes, 2011. "Wages Equal Productivity. Fact or Fiction? Evidence from Sub Saharan Africa," World Development, Elsevier, vol. 39(8), pages 1333-1346, August.
    18. John G. Sessions & John D. Skåtun, 2017. "Performance-Related Pay, Efficiency Wages and the Shape of the Tenure-Earnings Profile," Manchester School, University of Manchester, vol. 85(3), pages 295-319, June.
    19. Polachek, Solomon W., 2008. "Earnings Over the Life Cycle: The Mincer Earnings Function and Its Applications," Foundations and Trends(R) in Microeconomics, now publishers, vol. 4(3), pages 165-272, April.
    20. Scott J. Adams & John S. Heywood, 2007. "The Age of Hiring and Deferred Compensation: Evidence from Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 174-190, June.
    21. Daniel Vuuren, 2014. "Flexible Retirement," Journal of Economic Surveys, Wiley Blackwell, vol. 28(3), pages 573-593, July.
    22. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:labeco:v:15:y:2008:i:6:p:1143-1161. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/labeco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.