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OMB DEP DIR MGMT
202
395
6974
P.10/37
3 Framework
The question of precisely how to define a low skilled worker is not an easy one, particularly
in combination with the phrase "wage growth." To be more specific, suppose we are
examining wage growth of workers from age t1 to age tz. Let Wt, and W₁₂ be the wages
earned at age t₁ and t₂ ignoring for now the question of labor supply. Consider four possible
workers,
Worker Wᵢ₁ Wₜ₂
A
8
10
B
5
8
C
8
8
D
5
10
While we might be willing to say that worker A is a more highly skilled worker than
B, the comparison is much more difficult when C and D are included. For example, if
we classify skill groups by initial wages then D is classified as a low skill worker and C is
classified as a high skill worker so we would find that low skill workers have the largest
amount of wage growth. On the other hand if we define skill in terms of second period
wages, then worker C is characterized as a low skill worker and D is a high skill worker
so it looks as if high skilled workers have faster wage growth. This problem manifests
itself any time we examine a variable that depends on income status ex-post. In particular,
welfare receipt is likely to be correlated with Wh and Wₜ₂ in some complicated manner that
depends on the definition of receipt. While the question of wage growth levels among welfare
mothers is extremely important, it is very difficult to examine directly since welfare status
is endogenous to wage growth. To avoid this issue we focus on variables determined prior
to labor force entry that are likely to be correlated with wages. Of primary interest is the
relationship between schooling and wage growth as well as the relationship between family
background and wage progression. We also consider the importance of race and gender.
While these clearly are not pure measures of skill acquisition, they are good predictors
of wages, so we can ask the more general question of whether groups who tend to have
low levels of wages also have low wage growth. While thinking more seriously about the
relationship between unobservable skill and growth is an important research question, we
do not attempt to do that in this chapter.
6
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"ocrText": "JUL-03-2000 12:15\nOMB DEP DIR MGMT\n202\n395\n6974\nP.10/37\n3 Framework\nThe question of precisely how to define a low skilled worker is not an easy one, particularly\nin combination with the phrase \"wage growth.\" To be more specific, suppose we are\nexamining wage growth of workers from age t1 to age tz. Let Wt, and W₁₂ be the wages\nearned at age t₁ and t₂ ignoring for now the question of labor supply. Consider four possible\nworkers,\nWorker Wᵢ₁ Wₜ₂\nA\n8\n10\nB\n5\n8\nC\n8\n8\nD\n5\n10\nWhile we might be willing to say that worker A is a more highly skilled worker than\nB, the comparison is much more difficult when C and D are included. For example, if\nwe classify skill groups by initial wages then D is classified as a low skill worker and C is\nclassified as a high skill worker so we would find that low skill workers have the largest\namount of wage growth. On the other hand if we define skill in terms of second period\nwages, then worker C is characterized as a low skill worker and D is a high skill worker\nso it looks as if high skilled workers have faster wage growth. This problem manifests\nitself any time we examine a variable that depends on income status ex-post. In particular,\nwelfare receipt is likely to be correlated with Wh and Wₜ₂ in some complicated manner that\ndepends on the definition of receipt. While the question of wage growth levels among welfare\nmothers is extremely important, it is very difficult to examine directly since welfare status\nis endogenous to wage growth. To avoid this issue we focus on variables determined prior\nto labor force entry that are likely to be correlated with wages. Of primary interest is the\nrelationship between schooling and wage growth as well as the relationship between family\nbackground and wage progression. We also consider the importance of race and gender.\nWhile these clearly are not pure measures of skill acquisition, they are good predictors\nof wages, so we can ask the more general question of whether groups who tend to have\nlow levels of wages also have low wage growth. While thinking more seriously about the\nrelationship between unobservable skill and growth is an important research question, we\ndo not attempt to do that in this chapter.\n6"
}