Estimating Externalities to Experience in a Macro Mincer Model

This paper presents evidence that the age structure of the workforce matters for productivity. At first glance, this is unsurprising because standard Mincerian wage regressions show that workers with more schooling and more experience receive higher wages. If workers earn their marginal product, then the wage differential described by the Mincer evidence is a measure of the productivity difference between workers caused by different levels of schooling and experience. However, the micro-Mincer estimations will only capture the private return to experience. It may be that there is a significant social return to experience that is not reflected in wages. Feyrer (2006) shows that the demographic structure of the workforce is related to productivity using a non-structural approach. This paper differs from this earlier work by explicitly aggregating the Mincerian wage equation. This allows for a direct estimation of the social return to experience that is directly comparable to estimates of the private return from microeconomic estimates. The results suggest that the social return to experience is much larger than the private return.