“Golden Ages”: A Tale of the Labor Markets in China and the United States
We study the labor markets in China and the United States, the two largest economies in the world, by examining the evolution of their cross-sectional age-earnings profiles during the past thirty years. We find that, first, the peak age in the cross-sectional age-earnings profiles, which we refer to as the “golden age,” stayed almost constant at around 45-50 in the U.S., but decreased sharply from 55 to around 35 in China; second, the age-specific earnings grew drastically in China, but stayed almost stagnant in the U.S.; third, the cross-sectional and life-cycle age-earnings profiles were remarkably similar in the U.S., but differed substantially in China. We propose and empirically implement a decomposition framework to infer from the repeated cross-sectional earnings data the experience effect (i.e., human capital accumulation over the life cycle), the cohort effect (i.e., inter-cohort human capital growth), and the time effect (i.e., changes in the human capital rental prices over time), under an identifying assumption that the growth of the experience effect stops at the end of one's working career. The decomposition suggests that China has experienced a much larger inter-cohort productivity growth and higher increase in the rental price to human capital, but lower returns to experience, compared to the U.S. We also use the inferred components to revisit several important and classical applications in macroeconomics and labor economics, including growth accounting and the estimation of TFP growth, and the college wage premium and skill-biased technical change.
We would like to thank Hal Cole, Dirk Krueger, Ernest Liu, Iourii Manovskii, Nancy Qian, José-Víctor Ríos-Rull, Ke Shen, Michael Zheng Song, Feng Wang, Shang-Jin Wei, Yiqing Xu, Bernard Yeung, Xiaodong Zhu, and conference participants at the Chinese Economic Association Annual Conference (2019), the NBER Chinese Economy Working Group (2020), the 8th Annual ABFER Conference (2021), the 4th IZA/HSE Workshop (2021), the 6th Bank of Canada-Tsinghua PBCSF-University of Toronto Conference on the Chinese Economy (2021), and seminar participants at Fudan University, Peking University, ShanghaiTech University, USC Marshall, and the University of Pennsylvania for helpful comments and suggestions. We are responsible for all remaining errors. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.