Effect of Age on the Wage Distribution: A Quantitative Evaluation Using US Data

The distribution of wages varies with workers'age. In this article we build a model able to explain this evolution by taking into account two channels: the evolution of the wage game described in Burdett and Mortensen (1998), and the evolution of the workers'productivity within a match. The model considers three age groups, the juniors, the adults and the seniors. Using US data, we show that these two channels allow to reproduce quite well the aggregated wage distribution as well as the evolution of it over the workers life-cycle. The channel of the evolution of the wage game accounts for the lower density of low wages in the seniors'wage distribution. Yet firms are naturally induced to create lower quality jobs to seniors because of their short working horizon. In order to fit the data, we show that it is necessary to assume learning by doing of workers. The first aspect of learning by doing is to increase the workers'specific productivity, the second is to improve the adaptation to a new jobs of older workers. These two aspects explain different features of the wage distribution. The first one explains why the mode of the wage distribution is translated over the workers'life-cycle. The second accounts for the existence of high wages within the distribution of older workers.