Kapsalis, Constantine (1998): An Explanation of the Increasing Age Premium. Published in: (June 1998)
Download (80kB) | Preview
The study examines the reason for the significant increase in the ‘age premium’ over the period 1981-94. The age premium refers to the percentage difference in hourly earnings between ‘younger’ (25-34) and ‘older’ (45-54) workers. In 1994, the hourly rate of older males was 32.4% higher than that of younger males. The corresponding age premium among females was 15.5%. Over the period 1981-94, the age premium increased by 15.7 percentage points among males and 19.5 percentage points among females. Evidence based on analysis of the Survey of Consumer Finances (SCF) public use microdata shows that, while there has been a trend toward non-standard employment, this so far has affected mostly workers under age 25 and cannot explain the rise in the age premium between ages 25-to-34 and 45-to- 54, which is the focus of this study.
A more likely explanation identified by the study is the dramatic improvement in the level of education of older workers over the last 14 years. For example, from 1981 to 1994 the percentage of older male workers with grade 10 education or less declined from 41.9% to 19.6%, while the percentage with post-secondary diplomas and degrees increased from 32.1% to 51.7%. The education level of younger male workers also improved over the same period, but the rate of improvement was smaller and, by 1994, there was virtually no difference in the incidence of post-secondary diplomas and degrees between younger and older workers. Similar trends took place among female workers. Shift-share analysis shows that the narrowing of the education gap between older and younger workers explains 44% of the age premium rise among male employees and 50% of the age premium rise among female employees.
Thus, this study provides the following likely explanation for a significant part of the increase in the age premium over the period 1981-94: Fourteen years ago younger workers had to compete for jobs with older workers who had more experience but less education. Now, they have to compete with older workers who still have more experience but, on the average, have comparable education to younger workers. As a result, employers are willing to pay a higher premium than in the past for older workers who combine experience with higher education.
|Item Type:||MPRA Paper|
|Original Title:||An Explanation of the Increasing Age Premium|
|Keywords:||wage inequality; education and wages; age premium|
|Subjects:||D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials
|Depositing User:||Constantine Kapsalis|
|Date Deposited:||12. Oct 2010 19:15|
|Last Modified:||13. Feb 2013 05:55|
Akyeampong, Ernest B. (1997) "Work Arrangements: 1995 Overview" in Perspectives, Statistics Canada, Spring.
Beach, M. Charles and George A. Slotsve (1996) Are We Becoming Two Societies? C.D. How Institute.
Betcherman, Gordon, and René Morissette (1994) Recent Youth Labour Market Experiences in Canada, Research Paper Series No. 63, Analytical Studies Branch, Statistics Canada.
Betcherman, Gordon (1995) “Inside the Black Box: Human Resource Management and the Labour Market” in Good Jobs, Bad Jobs, No Jobs, edited by Roy J. Adams, Gordon Betcherman, and Beth Bilson. CD How Institute.
Burtless, Gary and Lawrence Mishel (1993) Recent Wage Trends -- The Implications for Low Wage Workers, Economic Policy Institute, Washington D.C.
Commission of Inquiry into Part-Time Work (1983) Part-Time Work in Canada. Labour Canada.
Crompton, Susan (1995) “Employment Prospects for High School Graduates.” Perspectives on Labour and Income, Autumn, pp. 8-12.
Davis, J. Steven (1992) Cross-Country Patterns of Change in Relative Wages. National Bureau of Economic Research, Working Paper No. 4085.
Economic Council of Canada (1991) Employment in the Service Economy. Research Report.
Economic Council of Canada (1992) A Lot to Learn -- Education and Training In Canada, Supply and Services Canada.
Gower, Dave (1993) The Impact of the 1990 Changes to the Education Questions on the Labour Force Survey, Statistics Canada, Labour and Household Surveys Analysis Division, Staff Report, September.
Heisz, Andrew (1995) “Changes in Job Tenure and Job Stability in Canada,” Statistics Canada, mimeo.
Kapsalis, Constantine (1982) “A New Measure of Wage Discrimination,” Economics Letters, Vol. 9, 1982 (pp. 287-293).
Kapsalis, Constantine; Garnett Picot; and René Morissette: (1997) “Do Changing Relative Education Levels Explain the Increasing Wage Gap Between Younger and Older Workers?” Statistics Canada, (forthcoming).
Lavoie, Claude (1996) “Youth Employment Situation in Canada: Some Explanation and Future Prospects,” Applied Economic Research, Human Resources Development Canada, mimeo. Analytical Studies Branch – Research Paper Series - 16 - Statistics Canada No. 11F0019MPE No.
Marquardt, Richard (1996) Youth and Work in Troubled Times: A Report on Canada in the 1990s, Canadian Policy Research Network Inc., Working Paper No. W01.
Mincer, Jacob (1991) "Human Capital, Technology, and the Wage Structure: What Do Time Series Show?" National Bureau of Economic Research, Working Paper No. 3581.
Morissette, René, John Myles and Garnett Picot (1994) What is Happening to Earnings Inequality in Canada? Research Paper Series No. 60, Analytical Studies Branch, Statistics Canada.
Nadeau, Serge, William D. Nash and Catherine E. Wetton (1993) “Gender Discrimination: Methodological Issues and Empirical Results for a Canadian Public Sector Employer,” Applied Economics, Vol. 25 1993 (pp. 227-241).
Osberg, Lars (1994) “Behaviour Response, Sociodemographic Change and the Distribution of Income: How to Value the Poorer Prospects of the Young?” Department of Economics, Dalhousie University, mimeo.
Picot, Garnett (1997) "What is Happening to Earnings Inequality in the 1990s?" Presented at the Canadian Economics Meetings, St. Johns, Newfoundland, June.
Richardson, David H. (1994) Changes in the Distribution of Wages in Canada, 1981-1992, University of British Columbia, Discussion Paper 94-22, August.
Riddell, W. Craig (1994) Human Capital Formation in Canada: Recent Developments and Policy Responses, UBC Department of Economics Discussion Paper 95-04, December.
Rifkin, Jeremy (1995) The End of Work, G.P. Putnam’s Sons.
Sheridan, Mike, Deborah Sunter, and Brent Diverty (1996) The Changing Workweek: Trends in Weekly Hours of Work in Canada, 1976-1995, Statistics Canada, mimeo.
Schellenberg, Grant and Christopher Clark (1996) Temporary Employment in Canada: Profile, Patterns and Policy Considerations, Canadian Council on Social Development, Social Research Series.
Wannell, Ted and Nathalie Caron (1994) The Gender Earnings Gap Among Recent Postsecondary Graduates, 1984-92, Research Paper Series No. 68, Analytical Studies Branch, Statistics Canada, November.
Wolfson, Michael (1989) “Inequality and Polarization: Is There a Disappearing Middle Class in Canada?” Statistics Canada, mimeo.
Wolfson, Michael (1996) Divergent Inequalities -- Theory, Empirical Results and Prescriptions, Statistics Canada, Research Paper Series No. 66.
Zyblock, Myles (1996) Individual Earnings Inequality and Polarization: An Exploration into Population Sub-Group Trends in Canada, 1981 to 1993, HRDC, Applied Research, draft, January.