A regression of wages on firm tenure is likely to yield biased estimates of the returns to tenure because tenure and wages are confounded by unobserved attributes of the job and the unobserved quality of the match between the firm and the employee. Previously, the within-job variation in tenure has been used as an instrument to estimate the average returns to tenure. We propose to use instead an easy-to-implement control function estimator for the returns to tenure and their dependence on unobserved heterogeneity. The results obtained for Germany indicate that there is a substantial amount of unobserved heterogeneity in the returns to tenure and that good job matches are characterized by higher returns to tenure in the first 5 years and lower returns thereafter.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper analyzes social group formation when agents are subject to peer effects within groups increasing human capital and instantaneous utility. When agents are heterogenous on two dimensions, ability and social skills, and monetary payments are not feasible the model predicts segregation at the top and at the bottom of the attribute space and bunching for heterogenous intermediate types. Groups may be heterogenous in taste types and more heterogenous types are more likely to participate. The equilibrium allocation does not induce cost-efficient human capital accumulation. Introducing ability tracking may produce beneficial results despite decreasing differences in human capital production. Terms of use: Documents in

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