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The "human capital earnings function," in which earnings are expressed as a quadratic in potential experience, is probably the most widely accepted empirical specification in economics. In spite of its widespread acceptance, the human capital earnings function provides a very poor approximation of the true empirical relationship between earnings and experience. The standard formulation understates early career earnings growth by about 30%-50% and overstates midcareer growth by 20%-50%. However, simple alternative specifications that fit the data are available. [ABSTRACT FROM AUTHOR]

Although surveys show that traditional orderings of average wage i.e., higher earnings with higher schooling and concave age-wage profiles-have not changed during the past three decades, the actual size of the wage differentials measured by education or by work experience has varied from peak to trough by a factor of two-to-one. The patterns are not monotone, but there is a trend toward increased skill premiums. We first examine the structure of wages among white men distinguished by age and schooling for the period from 1963 to 1989. We then compare shifts in the distribution of wages aid employment among the age × schooling categories to show in reference to a stable demand structure that employment alone cannot account for observed changes in relative wages. Finally, we describe the characteristics required of candidate demand shifters and offer examples using linear trend, business cycle shocks, and recent patterns of deficits in international trade. [ABSTRACT FROM AUTHOR]

Using data from the March Current Population Survey, we document an increase over the past 30 years in wage inequality for males. Between 1963 and 1989, real average weekly wages for the least skilled workers (as measured by the tenth percentile of the wage distribution) declined by about 5 percent, whereas wages for the most skilled workers (as measured by the ninetieth percentile of the wage distribution) rose by about 40 percent. We find that the trend toward increased wage inequality is apparent within narrowly defined education and labor market experience groups. Our interpretation is that much of the increase in wage inequality for males over the last 20 years is due to increased returns to the components of skill other than years of schooling and years of labor market experience. Our primary explanation for the general rise in returns to skill is that the demand for skill rose in the United States over this period. [ABSTRACT FROM AUTHOR]