Abstract: Wages are a cornerstone of economic organizations worldwide and directly affect individuals’ and families’ daily lives. In this article, we show how major theoretical branches of research on wages and inequality—that is, cumulative advantage (CA), human capital theory, and the lifespan perspective—can be integrated into a coherent statistical framework and analyzed by means of multilevel dynamic structural equation modeling (DSEM). This opens up a new way to empirically investigate the mechanisms that drive growing inequality over time. We demonstrate the new approach by making use of longitudinal representative U.S. data (NLSY-79). Analyses revealed fundamental between-person differences in both initial wages and autoregressive wage growth rates across the lifespan. Only a few individuals (0.5% of the sample) experienced a “strict” CA and unbounded wage growth, whereas most individuals revealed logarithmic wage growth over time. Although the correlation between initial wages and subsequent wage growth rates was negligible, adolescent intelligence and adult educational levels explained substantial heterogeneity in both parameters. We discuss how DSEM may help organizational researchers study CA processes and developmental dynamics in organizations, and we highlight the extensions and limitations of the DSEM framework.
Keywords: Dynamic Structural Equation Modeling (DSEM), wage dynamics, cumulative advantage (CA), autoregressive wage growth, human capital theory
