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The Fine Structure of Earnings and the On-the-Job Training Hypothesis

John C. Hause
Econometrica
Vol. 48, No. 4 (May, 1980), pp. 1013-1029
Published by: The Econometric Society
DOI: 10.2307/1912945
Stable URL: http://www.jstor.org/stable/1912945
Page Count: 17
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The Fine Structure of Earnings and the On-the-Job Training Hypothesis
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Abstract

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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