Human Capital Accumulation and Labour Market Equilibrium

Human Capital Accumulation and Labour Market Equilibrium We analyse an equilibrium labour market with on-the-job search and experience effects (where workers learn-by-doing). The analysis yields a standard Mincer wage equation with worker fixed effects and endogenously determined firm fixed effects. It shows that learningby-doing increases equilibrium wage dispersion consistent with the data. Equilibrium sorting where over time more experienced workers also tend to find and quit to better paid employment has a significant impact on wage inequality. As the model yields a cross section distribution of wages paid with the ‘right’ structure (the density of wages paid is single peaked with a ‘fat’ Pareto right tail) and yields the ‘right’ time profile of worker wage outcomes (the initial 10 years of a worker’s career are characterised by several job changes and rapid wage growth) it yields a new, coherent statistical structure for future applied work. JEL Classification: J24, J42, J64