The Inconsistency of the Quadratic Mincer Equation: A Proof

Author(s)
Susan S. Hamlen

ABSTRACT

This paper provides a proof that the well-known quadratic Mincer (1974) Equation, wherein the log of wage or salary is a quadratic function of the years of experience, is inconsistent with the usual assumptions of utility maximization. The proof requires the use of the dynamic version of the Mincer Equation and the assumption of an isoelastic marginal utility function. The result is that a polynomial of degree three or greater is required to relate the log of wage or salary to the number of years of experience.

This paper provides a proof that the well-known quadratic Mincer (1974) Equation, wherein the log of wage or salary is a quadratic function of the years of experience, is inconsistent with the usual assumptions of utility maximization. The proof requires the use of the dynamic version of the Mincer Equation and the assumption of an isoelastic marginal utility function. The result is that a polynomial of degree three or greater is required to relate the log of wage or salary to the number of years of experience.

Cite this paper

S. Hamlen, "The Inconsistency of the Quadratic Mincer Equation: A Proof,"*Theoretical Economics Letters*, Vol. 2 No. 2, 2012, pp. 115-120. doi: 10.4236/tel.2012.22021.

S. Hamlen, "The Inconsistency of the Quadratic Mincer Equation: A Proof,"

References

[1] J. Mincer, “Schooling, Experience and Earnings,” Columbia University Press, New York, 1974.

[2] K. Murphy and F. Welch, “Empirical Age-Earnings Profiles,” Journal of Labor Economics, Vol. 8, No. 2, 1990, pp. 202-229. doi:10.1086/298220

[3] M. Stone, “The Generalized Weier-strass Approximation Theorem,” Mathematics Magazine, Vol. 21, No. 4, 1948, pp. 167-184. doi:10.2307/3029750

[4] J. Heckman, L. Lochner and P. Todd, “Fifty Years of Mincer Earnings Regressions,” NBER WP 9732, 2003.

[5] T. Lemieux, “The Mincer Equation, Thirty Years after Schooling Experience, and Earnings,” Center for Labor Economics, Uni-versity of California-Berkeley, Berkeley, 2003.

[6] Y. Ben-Porath, “The Production of Human Capital and Life Cycle of Earnings,” The Journal of Political Economy, Vol. 75, No. 4, 1967, pp. 352-365. doi:10.1086/259291

[7] E. Sheshinski, “On the Individual’s Lifetime Allocation Between Education and Work,” Metroeconomica, Vol. 20, No. 1, 1968, pp. 42-49. doi:10.1111/j.1467-999X.1968.tb00123.x

[8] W. J. Haley, “Human Capital: The Choice between Investment and Income,” American Economic Review, Vol. 63, No. 5, 1973, pp. 929-944.

[9] H. Ryder, F. Stafford and P. Stephan, “Labor, Leisure and Training over the Life-Cycle,” International Eco-nomic Review, Vol. 17, No. 3, 1976, pp. 651-674. doi:10.2307/2525794

[10] W. Haley, “Estimation of the Earn-ings Profile from Optimal Human Capital Accumulation,” Econometrica, Vol. 44, No. 6, 1976, pp. 1223-1238. doi:10.2307/1914256

[11] A. Leibowitz, “Years of Intensity of Schooling Investment,” American Economic Review, Vol. 66, No. 3, 1976, pp. 321-334.

[12] J. Driffill, “Life-Cycles with Terminal Retirement,” International Economic Review, Vol. 21, No. 1, 1980, pp. 45-62. doi:10.2307/2526239

[13] J. Behrman and N. Birdsall, “The Quality of Schooling: Quantity Alone Is Misleading,” American Economic Review, Vol. 73, No. 5, 1983, pp. 928-946.

[14] J. Heckman and S. Polachek, “Empirical Evidence of the Functional Form of the Earnings-Schooling Relationship,” Journal of theAmerican Statistical Association, Vol. 69, No. 346, 1974, pp. 350-354. doi:10.2307/2285656

[15] H. Frazis and M. Loewenstein, “Reexamining the Returns to Training: Functional Form, Mag-nitude, and Interpretation,” The Journal of Human Resources, Vol. 40, No. 2, 2005, pp. 453-476.

[16] J. Heckman, L. Lochner and P. Todd, “Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond,” In: E. Hanishek and F. Welch, Eds., Handbook of the Economics of Education, Elsevier, Amsterdam, 2006, pp. 307-458. doi:10.1016/S1574-0692(06)01007-5

[1] J. Mincer, “Schooling, Experience and Earnings,” Columbia University Press, New York, 1974.

[2] K. Murphy and F. Welch, “Empirical Age-Earnings Profiles,” Journal of Labor Economics, Vol. 8, No. 2, 1990, pp. 202-229. doi:10.1086/298220

[3] M. Stone, “The Generalized Weier-strass Approximation Theorem,” Mathematics Magazine, Vol. 21, No. 4, 1948, pp. 167-184. doi:10.2307/3029750

[4] J. Heckman, L. Lochner and P. Todd, “Fifty Years of Mincer Earnings Regressions,” NBER WP 9732, 2003.

[5] T. Lemieux, “The Mincer Equation, Thirty Years after Schooling Experience, and Earnings,” Center for Labor Economics, Uni-versity of California-Berkeley, Berkeley, 2003.

[6] Y. Ben-Porath, “The Production of Human Capital and Life Cycle of Earnings,” The Journal of Political Economy, Vol. 75, No. 4, 1967, pp. 352-365. doi:10.1086/259291

[7] E. Sheshinski, “On the Individual’s Lifetime Allocation Between Education and Work,” Metroeconomica, Vol. 20, No. 1, 1968, pp. 42-49. doi:10.1111/j.1467-999X.1968.tb00123.x

[8] W. J. Haley, “Human Capital: The Choice between Investment and Income,” American Economic Review, Vol. 63, No. 5, 1973, pp. 929-944.

[9] H. Ryder, F. Stafford and P. Stephan, “Labor, Leisure and Training over the Life-Cycle,” International Eco-nomic Review, Vol. 17, No. 3, 1976, pp. 651-674. doi:10.2307/2525794

[10] W. Haley, “Estimation of the Earn-ings Profile from Optimal Human Capital Accumulation,” Econometrica, Vol. 44, No. 6, 1976, pp. 1223-1238. doi:10.2307/1914256

[11] A. Leibowitz, “Years of Intensity of Schooling Investment,” American Economic Review, Vol. 66, No. 3, 1976, pp. 321-334.

[12] J. Driffill, “Life-Cycles with Terminal Retirement,” International Economic Review, Vol. 21, No. 1, 1980, pp. 45-62. doi:10.2307/2526239

[13] J. Behrman and N. Birdsall, “The Quality of Schooling: Quantity Alone Is Misleading,” American Economic Review, Vol. 73, No. 5, 1983, pp. 928-946.

[14] J. Heckman and S. Polachek, “Empirical Evidence of the Functional Form of the Earnings-Schooling Relationship,” Journal of theAmerican Statistical Association, Vol. 69, No. 346, 1974, pp. 350-354. doi:10.2307/2285656

[15] H. Frazis and M. Loewenstein, “Reexamining the Returns to Training: Functional Form, Mag-nitude, and Interpretation,” The Journal of Human Resources, Vol. 40, No. 2, 2005, pp. 453-476.

[16] J. Heckman, L. Lochner and P. Todd, “Earnings Functions, Rates of Return and Treatment Effects: The Mincer Equation and Beyond,” In: E. Hanishek and F. Welch, Eds., Handbook of the Economics of Education, Elsevier, Amsterdam, 2006, pp. 307-458. doi:10.1016/S1574-0692(06)01007-5