Why do Wage Profiles Slope Upward? Tests of the General Human Capital Model

This article tests the implications of the general human capital that (i) at the individual level, there is a negative relationship between the initial wage level and wage growth of inexperienced workers and (ii) at the market level, the ratio of the present values of wage profiles of investors and otherwise identical noninvestors equals one. We find a negative relationship between initial wage levels and wage growth, even after correcting for negative biases in existing estimates of this relationship. We also find that the ratio of the present values of rising wage profiles to flat wage profiles is generally close to one.