Ability and age-income profiles

This paper is devoted to the personal distribution of income. The focus is on the relation between individual age and income and on the observed regularities in these age‐income profiles. Empirically, age‐income profiles show marked differences by occupation and by education. In general, with increasing levels of education both the level and the slope of the age‐income profile increase; there is also a tendency of the variance of income to increase with age. Explanations of these facts are discussed. The human capital model is found defective in two ways: direct measurement of capital formation that occurs through on‐the‐job training is not feasible and the demand side of the labor market is ignored. Lydall's approach stressing the role of ability development is considered promising, yet lacking a theoretic integration of the relevant factors. The relation between education and ability is also reviewed. It is concluded that IQ is an important variable associated with educational attainment, but that its explanatory power with respect to earnings in addition to length of schooling is almost negligible. Moreover, its development over age cannot be held responsible for the age‐income profile, since its peak is far too early. Ability as a multidimensional concept appears attractive, though empirical problems are manifold. Finally, interesting direct empirical evidence on productivity development with experience is found in the literature on the learning curve. In certain jobs, where productivity can be measured directly, increasing experience on the job produces an asymptotic productivity profile. In the final section the conclusions are reviewed and used to briefly indicate a new theory. According to this theory, capabilities are the key variables in the labor market. Individual preferences regarding employment of these capabilities guide decisions about job choice. The labor market rewards capabilities and capability development over age explains the age‐income profile. 1976 The International Association for Research in Income and Wealth