The Age-Competency Model to the Study of the Age-Wage Profiles for Workers

In this article, I present a new approach and a novel model to the study of the life cycle of wages. The key idea is that wage can be thought as remuneration paid for the competency. It is assumed with the approach that there are three mechanisms acting at micro level and resulting in the change of workers' competencies during their lives. These are an endogenous growth of workers' initial competencies; a rate of investments in schooling in the life cycle of wages; and an effect of relative losses in workers' competencies. The developed model is to shed light on the processes resulting in the age-wage profiles seen in mass. The model obeys a nonlinear integro-differential equation. The found analytic solution of the equation has the form of Fisk PDF of a special type. The solution and its features are discussed. The regression technique is used to check the model upon reliability. The model provides better fitting to the data (Elo and Salonen, 2004) than minceraninan earnings function (Mincer, 1974) does.