Implicit Investment Profiles and Intertemporal Adjustments of Relative Wages

The human capital model is appealing because it introduces a theoretical explanation of earnings differentials that is consistent with rational behavior on the parts of the actors. Nevertheless, the theory is not completely satisfactory because it is built upon unobserved quantities, namely human capital, and the observable implications of this theoretical structure are generally consistent with a variety of other explanations. One objective of this analysis is to consider more directly the implied investment behavior of workers, since it is at
that level that human capital theory diverges from alternative theories.