Applying a CRESH aggregate labour index to generate age-wage profiles. Issue 1 (2nd January 2016)

• Record Type: Journal Article
• Authors: Guest, Ross; Jensen, Bjarne S.
• Is Part Of: Applied economics letters. Volume 23:Issue 1(2016)
• Page Start: 27
• Page End: 33
• Publication Date: 2016-01-02
• Subjects: Labour substitution -- age-wage profiles -- CRESH function -- wage premium; D00 -- J10; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2015.1047083
• Languages: English
• ISSNs: 1350-4851

Abstract

Abstract: This article shows how a CRESH (Constant Ratios of Elasticity of Substitution, Homothetic) labour index can generate more realistic optimal wage profiles than traditional (restrictive) functional forms. The CRESH index function allows for age-specific elasticities of substitution that are implied by a proper choice of CRESH parameters. The ability to generate plausible optimal age-wage profiles can be useful in, for example, calibrating demographic macroeconomic models. The CRESH analysis also provides one explanation for the well-established divergence of actual relative wages by age from the relative age-specific intensity parameters of a simple additive labour index. Moreover, CRESH labour index may explain the increasing relative wages for middle-aged workers as a result of employing larger numbers of older workers (population aging).