We assumed their earnings would follow a quadratic-shaped
age-earnings profile, initially increasing by 4% per annum but slowing to a 2% growth rate after 20 years.
We will need to assume that the lifecycle earnings profile can be approximated by looking at the cross-section
age-earnings profile for the most recent cohorts for whom we have data.
For instance, the influx of a relatively large cohort of younger, lower-paid workers could reduce the growth of average wages, even if no individual workers are earning less than their
age-earnings profile would predict.
As specified in Equation (2), in order to obtain an estimate of NP[V.sub.n] we must have estimates of the
age-earnings profile. We could simply estimate [W.sub.t] using Equation (1).
Results show that experience paid off more to male workers than to female, and the returns to experience declined more rapidly as age increased, supported the concavity of the
age-earnings profile.
Age and its square term are both significant at greater than the 1% level across all education groups and the signs imply the usual
age-earnings profile; the log of wages increases at a decreasing rate.
Finally, the
age-earnings profile for teachers would more closely resemble the profile for other professions.
The main prediction is that the
age-earnings profile for overeducated or undereducated workers is steeper than the profile for exactly educated workers.
One may argue, however, that changes in earnings premium could be affected by changes in the
age-earnings profile across educational groups.
This implies that experience had a smaller effect on Muhajir earnings that it did on those from the other ethnic groups, AGE-SQUARED was negative and highly significant in all ethnic groups confirnung the concavity of the
age-earnings profile.
Current and permanent earnings differ by virtue of an executive's position on his or her
age-earnings profile g([AG.sub.it]) and by a transitory-earnings component.
To get realistic estimates of the mean
age-earnings profile, the authors use 1980-92 data on earnings of employed heads of households and their spouses from the Panel Survey of Income Dynamics.
