Sources of wage growth

Adda, Jerome Frans; Dustmann, Christian

This paper investigates the sources of wage growth over the life cycle, where individuals have the possibility to acquire vocational training at the start of their career. Wage growth is determined by sectoral and firm mobility, unobserved abil- ity and the accumulation of human capital. Workers may move between two oc- cupational sectors that require cognitive-abstract (CA) and routine-manual (RM) skills, and job mobility is induced by non-pecuniary job attributes and persistent firm-worker productivity matches. Estimating this model using longitudinal ad- ministrative data over three decades, we show that RM skills are a key driver of early wage growth while CA skills become important later on. Moreover, job amenities are an important determinant of mobility decisions. Vocational training has long term effects on career outcomes, affecting the type and quality of matches, with substantial internal rates of return both to the individual as well as society.