Why Do Wage Profiles Slope Upwards? Tests of the General Human Capital Model

David Neumark, Paul Taubman

NBER Working Paper No. 4688
Issued in March 1994
NBER Program(s):Labor Studies

This paper tests some empirical implications of the general human capital model's explanation of rising wage profiles. At the individual level, the model implies that there will be a negative relationship between the initial wage level and wage growth of young, inexperienced workers. At the market level, the model implies that the present value of the wage profile of an investor equals that of an otherwise identical non-investor, or that the ratio of the present values equals one. We test both of these hypotheses. Evidence on the wage level-wage growth tradeoff points to a negative relationship between initial wage levels and wage growth, even after correcting for negative biases that may have influenced existing estimates of this relationship. Evidence on present values of wage profiles suggests that the ratio of the present value of rising wage profiles to flat wage profiles is quite close to one. Alternative estimates of this ratio are tightly clustered around one, and more often than not are insignificantly different from one. Overall, then, the evidence is largely consistent with the general human capital model.

download in pdf format
   (460 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4688

Published: Journal of Labor Economics, Vol. 13, no. 4 (1995): pp. 736-761. citation courtesy of

Users who downloaded this paper also downloaded* these:
Akerlof and Katz w2025 Do Deferred Wages Dominate Involuntary Unemployment as a Worker Discipline Device?
Grossman w7078 The Human Capital Model of the Demand for Health
Topel w3294 Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority
Acemoglu and Pischke w6357 The Structure of Wages and Investment in General Training
Mincer w3208 Job Training: Costs, Returns, and Wage Profiles
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us