LEARNING AND WAGE DYNAMICS

We develop a dynamic model of learning about worker ability in a compe titive labor market. The model produces three testable implications re garding wage dynamics: (1) although the role of schooling in the labor market's inference process declines as performance observations accum ulate, the estimated effect of schooling on the level of wages is inde pendent of labor-market experience; (2) time-invariant variables corre lated with ability but unobserved by employers (such as certain test s cores) are increasingly correlated with wages as experience increases; and (3) wage residuals are a martingale. We present evidence from the NLSY that is broadly consistent with the model's predictions.