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The evolution of wages over the lifecycle: insights from intergenerational connections

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Abstract:

This article uses intergenerational information to improve our understanding of lifecycle wage dynamics. I present a simple statistical model that relates the wages of workers at different points in their lifecycle to the earnings of their parents. I decompose cross-sectional variance of wages into a permanent component related to parental background, a permanent component unrelated to parental background, and a transitory component. Data from the Panel Study of Income Dynamics (PSID) suggests that intergenerational relationships are stronger when measured later in the lifecycle of the son. This implies that the permanent parent-related component is increasingly important for wage determination as workers grow older. This is not consistent with wage evolution through persistent random shocks. Rather, it is consistent with human capital models and learning models of wage evolution.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840801964682

Affiliations: Department of Economics, Texas A&M University, College Station, TX 77843, USA

Publication date: September 1, 2010

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