How Much Does a Year off Cost? - Estimating the Wage Effects of Employment Breaks and Part-Time Periods

Discontinuities in the employment profile are supposed to cause wage cuts since they imply an interruption in the accumulation of human capital as well as a depreciation of the human capital stock built up in the past. In this paper, we estimate the return to effective experience, taking into account both the timing and the duration of non-work and part-time employment spells. Estimation results for German women suggest that wage rates are substantially affected by discontinuities in the employment pattern. Deviations from full-time employment are associated with significant wage cuts. Postponing the discontinuity is associated with a fall of the wage rate. We conclude that traditional wage estimations that do not control for depreciation underestimate the return to effective experience. Controlling for individual heterogeneity with respect to industry sector and job position decreases the estimated depreciation rates. This we interpret as an indication for segregation in the labor market.

Beblo, Miriam und Elke Wolf (2000), How Much Does a Year off Cost? - Estimating the Wage Effects of Employment Breaks and Part-Time Periods , ZEW Discussion Paper Nr. 00-69, Mannheim.