Do Wages Rise with Job Seniority?

Abstract

This research was funded under contract USDL-9-M-2-O].21 by the U.S. Department of Labor, which does not necessarily subscribe to the opinions as conclusions expressed in the paper. The estimation technique used in the paper and the empirical analysis were presented in preliminary form in an unpublished paper entitled °Wages, Productivity and Turrmover (November 1983). We are grateful to Michael Klein, Daniel Friedlander and especially Christina Paxson for outstanding research assistance, and to Kevin O'Neil for excellent clerical support. We also thank

Wage-Tenure Profiles and Mobility

“…There are several ways to estimate the returns to tenure. The seminal approaches by Altonji and Shakotko (1987), Abraham and Farber (1987) and Topel (1991) are likely to produce biased estimates. The reason is that tenure is not a fully exogenous explanatory variable of wages, since unobserved individual and match-specific characteristics determine both the wage level as well as tenure.…”

“…In the second step, workers who started a new job are used to estimate the impact of experience on wages. 1 Next to the Topel-approach, this research estimates models suggested by Altonji and Shakotko (1987) and Abraham and Farber (1987). The endogeneity problem is addressed by using instrumental variables (IV) for tenure and experience.…”

“…The cumulative returns are based on point estimates; estimated coefficients and standard errors are presented in the Appendix, Tables 4 and 5. The results on the method of first differences are based on Topel (1991), while the results for the instrumental variables are based on Altonji and Shakotko (1987) and Abraham and Farber (1987). b For comparison, returns to experience after 10 (20) years according to the IV model with tenure being instrumented amount to 62% (80%) for the Netherlands, 47% (91%) for the US (Altonji and Shakotko 1987), and 68% (132%) for West Germany (Zwick 2008).…”

“…The paper focuses on the impact of tenure (the duration of a match between a worker and a firm) on wages, as opposed to the impact of overall experience in the labour market. Returns to tenure are estimated using several models that address the problem of endogeneity of tenure in the wage equation (e.g., Shakotko 1987 andTopel 1991). Returns to tenure are generally interpreted as the firm-related component of wages, which may act as an impediment to mobility.…”

The marriage premium and compensating wage differentials

“…19 The increased wage growth of married workers could also reflect the process of job search with married workers choosing higher paying jobs relative to single workers every time they make a job change. In support of this interpretation, three recent studies all emphasize that job search and general labor market experience, as opposed to investments in job-specific training, are the predominant contributors to workers' wage growth (Altonji and Shakotko 1987;Abraham and Farber 1987;Marshall and Zarkin 1987). Correspondingly, Hall calculates that the average worker will hold ten jobs during the course of his labor market career (Hall 1982).…”