1992•The Quarterly Journal of EconomicsRequires access

Estimating a Firm's Age-Productivity Profile Using the Present Value of Workers' Earnings

Laurence J. Kotlikoff, Jagadeesh Gokhale

Abstract

In hiring new workers, risk-neutral employers equate the present expected value of a worker's compensation to the present expected value of his/her productivity. Data detailing how present expected compensation varies with the age of hire, therefore, embed information about how productivity varies with age. This paper infers age-productivity profiles using data on the present expected value of earnings of new hires of a Fortune 1000 firm. For each of the five occupation/sex groups considered, productivity falls with age, with productivity exceeding earnings when young and vice versa when old.

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Key concepts: Productivity, Earnings, Value (mathematics), Compensation (psychology), Economics, Labour economics, Demographic economics, Accounting