Career Interruptions and Subsequent Earnings: A Reexamination Using Swedish Data

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. University of Wisconsin Press andThe Board of Regents of the University of Wisconsin System are collaborating with JSTOR to digitize, preserve and extend access to The Journal of Human Resources. ABSTRACT This paper reexamines the link between career interruptions and subsequent wages. Using a rich new Swedish data set, we are able to disaggregate time out of work into several components. In both cross-sectional and panel estimations, regressing log wages on total time out results in a negative coefficient on total time out, which has been interpreted in other studies as evidence for human capital depreciation. However, we find that different types of time out have different effects on wages and that these effects vary by gender. This suggests that human capital depreciation is not the entire explanation for the negative effect of career interruptions on subsequent wages. I. IntroductionThe fact that women are more likely than men to interrupt their work careers for family reasons (childbearing, child rearing, and so on) is understood to be an important factor behind the gender gap in wages. Career interruptions are thought to reduce women's wages relative to men's for at least three reasons. First, Albrecht, Edin, Sundstr6m, and Vroman wages tend to rise with work experience,1 and time spent away from work is experience foregone; that is, women tend to earn less than men because on average they have accumulated less work experience. Second, it is thought that, anticipating future work interruptions, women choose (or are assigned to) jobs with less potential for training and hence have flatter earnings-experience profiles; that is, women tend to realize a lower rate of return per unit of realized work experience.2 Finally, time out of the workforce appears to lead to a loss in subsequent earnings greater than can be explained solely by foregone experience. This last phenomenon is the focus of our paper.Several studies, starting with Mincer and Polachek (1974), have used U.S. data to investigate the effect of career interruptions on women's subsequent wages by estimating earnings functions, augmented by the inclusion of variables representing time out of work.3 Most of these papers find that time out of work has a negative effect on wages. That is, women who take time out appear to suffer an additional negative effect above and beyond the wages lost due to foregone experience. This has been interpreted as the result of skill atrophy or human capital depreciation.In this paper, we use a rich new Swedish data set to reexamine the effects of time out on subsequent wages.4 These data are well suited to this purpose for the following reasons. First, we have month-by-month event histori...

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