Learning by Problem Solving

The standard Mincer model does not account for large differences in earnings across occupations. We present a learning-by-doing model that relates wages and skill development to the level of job complexity of a worker. Using administrative data on German labour market entrants, we find that wage growth is positively related to job complexity and negatively related to the initial level of skill. We calibrate the model and show that workers in highly complex occupations acquire twice as much human capital throughout life compared to workers in simple occupations. The results suggest that learning-by-doing is a far more important earnings determinant than investment in education and training that have been the focus of the literature