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Measuring the Gap between Wage and Productivity: Wage-Tenure Profile and Productivity-Tenure Profile Cross Twice

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  • Kodama, Naomi
  • Odaki, Kazuhiko

Abstract

This paper proposes a new empirical method to measure the gap between wage and productivity of workers. Our method aggregates Mincer-type human capital function of all workers of a firm and obtains the total labor input. We put it into the Cobb-Douglas production function and estimate the coefficients of gap between wage and productivity. Applying the method to employer-employee matched panel data, we find that wagetenure profile and productivity-tenure profile intersect twice. The wage is higher than the productivity in junior years, then surpassed by the productivity in middle age, and becomes higher again in late career. The results are consistent with both of Becker's firm sponsored training model and Lazear's deferred compensation model.

Suggested Citation

  • Kodama, Naomi & Odaki, Kazuhiko, 2013. "Measuring the Gap between Wage and Productivity: Wage-Tenure Profile and Productivity-Tenure Profile Cross Twice," CIS Discussion paper series 612, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:cisdps:612
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/26007/cis_dp612.pdf
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    References listed on IDEAS

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    1. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4, National Bureau of Economic Research, Inc.
    2. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1.
    3. Ernst R. Berndt & Charles R. Hulten, 2007. "Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches," NBER Books, National Bureau of Economic Research, Inc, number bern07-1.
    4. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    5. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    6. Edward P. Lazear & Robert L. Moore, 1984. "Incentives, Productivity, and Labor Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(2), pages 275-296.
    7. Judith K. Hellerstein & David Neumark, 2007. "Production Function and Wage Equation Estimation with Heterogeneous Labor: Evidence from a New Matched Employer-Employee Data Set," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 31-71, National Bureau of Economic Research, Inc.
    8. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    9. Jacob A. Mincer, 1974. "Schooling and Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 41-63, National Bureau of Economic Research, Inc.
    10. 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.
    11. Ernst R. Berndt & Charles R. Hulten, 2007. "Introduction to "Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches"," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 1-14, National Bureau of Economic Research, Inc.
    12. Kawaguchi, Daiji & Kwon, HyeogUg & Shimizutani, Satoshi & Fukao, Kyoji & Makino, Tatsuji & Yokoyama, Izumi & Kambayashi, Ryo & Kim, YoungGak, 2007. "Are Wage‐tenure Profiles Steeper than Productivity‐tenure Profiles?―Evidence from Japanese Establishment Data from the Census of Manufacturers and the Basic Survey Wage Structure―," Economic Review, Hitotsubashi University, vol. 58(1), pages 61-90, January.
    13. Kawaguchi, Daiji, 2003. "Human capital accumulation of salaried and self-employed workers," Labour Economics, Elsevier, vol. 10(1), pages 55-71, February.
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    Cited by:

    1. Maciej Lis, 2017. "Productivity based selection to retirement: Evidence from EU-SILC," IBS Working Papers 02/2017, Instytut Badan Strukturalnych.

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    More about this item

    Keywords

    Productivity; Human capital; Production function; Wage;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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