Earnings functions: beyond human capital

Taking a short-run view of the labour market, where individuals with given levels of education have to be matched with jobs differing in level of complexity and difficulty, wages are related to education and job levels. In a sample of some 13000 observations, controlling for age, experience and sex, a model emphasizing both sides of the allocation process is favoured over the simple human capital view that ignores allocation once education is taken care of. It is claimed that the long-run human capital model can fruitfully be expanded with this short-run allocation structure. The empirical results measure the differences in earnings for individuals with given education working at different job levels, and shows them to be substantial. The relevance of adding job levels to the explanatory variables is illustrated with the case of female earnings discrimination and with differences in age-earnings profiles between general and vocational education.