OCCUPATIONAL AND INDUSTRY SPECIFICITY OF HUMAN CAPITAL IN THE BRITISH LABOUR MARKET
| Published date | 01 September 2008 |
| Author | Alexandros Zangelidis |
| DOI | http://doi.org/10.1111/j.1467-9485.2008.00460.x |
| Date | 01 September 2008 |
OCCUPATIONAL AND INDUSTRY
SPECIFICITY OF HUMAN CAPITAL IN
THE BRITISH LABOUR MARKET
Alexandros Zangelidis
n
Abstract
This paper builds on the recent literature on the importance of occupational and
industry experience on wages and extends Kambourov and Manovskii’s (2002)
study using British data. Occupational experience is estimated to make a
significant contribution to wage growth, while the evidence on industry specificity
is not very supportive. The second contribution of the paper is that it assesses
whether there is heterogeneity in the estimated returns to work experience across
one-digit industries and occupations. The findings suggest that industry and
occupational experience is important for individuals in professional and manage-
rial jobs or jobs in the banking and finance sector.
I Intro ductio n
In recent years there have been some developments in the labour economics
literature on the issue of specificity of the accumulated work experience and its
importance in the determination of wages. Particularly, a number of studies
have departed from the traditional view that work experience is described by
firm-specific and general labour market components, and explored whether the
skills and experience obtained are occupation or industry specific.
Studies on displaced workers have revealed that industry may be an
important dimension across which skills are transferable (Podgursky and
Swaim, 1987; Addison and Portugal, 1989a, b; Kletzer, 1991; Ong and Mar,
1992; Carrington, 1993; Ong and Lawrence, 1993; Neal, 1995). Continuing in
that direction, Parent (2000) took a more direct approach and estimated
earnings equations with industry experience included in the regressors vector.
According to his findings it is industry specificity rather than employer specificity
that is important in wage growth.
Regarding the occupation specificity of work experience, the first paper that
directly examined the significance of occupational investment (as part of
the post-school human capital) in wage determination, is a study by Shaw
(1984). Shaw argued that occupational investment makes a very important
n
University of Aberdeen
Scottish Journal of Political Economy, Vol. 55, No. 4, September 2008
r2008 The Author
Journal compilation r2008 Scottish Economic Society. Published by Blackwell Publishing Ltd,
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA
420
contribution to individual’s earnings profiles, ‘empirically dominating the
standard experience variable as a proxy for the stock of general human capital
investment embodied in the individual’ (p. 338). Shaw (1987) in a later study also
highlighted the importance of the intensity of investment in occupational skills
and the transferability of occupational skills in the occupational change process.
Goldsmith and Veum (2002) brought together the literature on industry and
occupational specificity and examined the contribution of industry and
occupational experience to wage determination. All forms of workplace
experience (employer, industry and/or occupation specific) were estimated to
have a positive and significant effect on individuals’ wages. Kambourov and
Manovskii (2002) in their study reported similar results regarding the
importance of occupational specificity in the acquired work experience.
However, in contrast to Goldsmith and Veum (2002) they found that when
individuals’ experience in an occupation is included in the estimated wage
equation, employer and industry tenure have little importance in explaining the
variation in wages. Subsequently, several other studies also emerged in the
literature that provided further evidence on the significance of occupational
experience in the wage determination process (Kwon and Meyersson Milgrom,
2004; Hagedorn et al., 2005; Pavan, 2005).
This paper builds on and contributes to this literature on the specificity
of work experience. In particular, the first contribution of this study is to extend
the Kambourov and Manovskii (2002) analysis using the British Household
Panel Survey (BHPS). This is the first study, to the author’s knowledge, that
uses British data. The BHPS data set contains retrospective records of the
individuals from the time they first entered the labour market that enables the
researcher to measure the number of years the respondent has spent with a
particular employer and in a specific industry or occupation. The analysis finds
significant returns to occupational experience, while the evidence on industry
experience is not very supportive, in line with Kambourov and Manovskii’s
(2002) results.
The second contribution of the paper is that it examines whether there is
heterogeneity in the estimated returns to occupational and industry experience
across the broadly defined one-digit occupations and industries. Obtaining an
estimate on the average effect of industry or occupation specific experience may
mask considerable heterogeneity across the different industry sectors and
occupations. A closer examination on the heterogeneity of the returns to
occupation and industry experience can be of significant importance in better
understanding wage growth, and may be enlightening on issues related to
individuals’ career choices and labour market mobility. Indeed the findings
support the notion of heterogeneity. In particular, it is in high-skilled jobs – like
managerial and professional occupations – that there are substantial returns to
occupational experience, while the returns to industry experience are observable
only in the banking and finance sector.
The paper is organised as follows. In Section II the methodology is explained,
followed by a description of the data set in Section III. The main findings are
discussed in Section IV, including the implications of the findings on the
HUMAN CAPITAL IN THE BRITISH LABOUR MARKET 421
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Journal compilation r2008 Scottish Economic Society
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