Age and Earnings in the Labor Market: Implications of the 1980's Labor Bulge

Arthur, W.B. (1979). Age and Earnings in the Labor Market: Implications of the 1980's Labor Bulge. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-79-118

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Abstract

This paper proposes a non-neoclassical model of earnings and advancement over the working lifecycle. It assumes an economy that generates job-slots or positions, arranged institutionally at different seniority levels, each carrying a salary tagged to its level. The individual is driven upward in rank and salary as time passes, not because his productivity or human capital necessarily increases, but because retirement and death progressively thin out the numbers "above him" who occupy positions at higher levels.

Larger labor cohorts (for example the 1980's "labor bulge") would depress age-earnings profiles within this system. The extent of earnings loss depends on the relative number of job-slots at different levels, on the age-location of these cohorts within the labor force, on the extent to which they bring into being new productive jobs, and on the promotional policy in force.

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