ABSTRACT

We study how worker-specific ability to generate earnings evolves over the life cycle. We measure the dynamics of earning ability by extending the canonical AKM model of wage determination to allow worker effects to vary as individuals age. Age-dependent estimates of earning ability unveil heterogeneous career trajectories, with high ability workers sorting into higher-paying employers early in their careers and moving to different firms to a lesser extent thereafter. We show that earning ability significantly decreases after job loss, suggesting that it is at least partly match-specific. This result is particularly pronounced for high-ability workers, who, conversely, are the ones experiencing the lowest penalties in employer pay after job loss.

JEL codes: J31, J21.
Keywords: Earning ability, AKM model, ageing.
ISSN 2704-7407
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