NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Covariance Structure of Earnings and the On the Job Training Hypothesis

John C. Hause

NBER Working Paper No. 25
Issued in December 1973

The fine structure of earnings is defined by a theoretically meaningful decomposition of the covariance matrix of earnings (or log earnings) time series. A three-element variance components model is proposed for analyzing earnings of young workers. These components are interpreted as the effects of differential on-the-job training (OJT) and differential economic ability. Several properties of these components and relationships between them are deduced from the OJT model. Background noise generated by a nonstationary first-order autoregressive process, with heteroscedastic innovations and time-varying AR parameters is also assumed present in observed earnings. ML estimates are obtained for all parameters of the model for a sample of Swedish males. The results are consistent with the view that the OJT mechanism is an empirically significant phenomenon in determining individual earnings profiles.

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Document Object Identifier (DOI): 10.3386/w0025

Published:

  • John C. Hause, 1977. "The Covariance Structure Of Earnings And The On-The-Job Training Hypothesis," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 4, pages 6-38 National Bureau of Economic Research, Inc.
  • (Published as "The Fine Structure of Earnings and On-the-Job Training Hypothesis") Econometrica, Vol. 48, no. 4 (1980): 1013-1030.

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