Skill Level and the Returns to Job-Tenure in Internal Labour Markets in Australia

Abstract

Both the enterprise and salaried versions of the internal labour market model predict an important role for job specific tenure in the determination of employee earnings. This paper estimates earnings equations using data drawn from the 2005 wave of the Survey of Education and Training Experience (hereafter SETE) to test this idea. The paper finds considerable support for the presence of a job tenure effect, even after controlling for general labour market experience. The paper also seeks to determine if the strength of the tenure effect is related to skill level. The paper finds that the evidence for a tenure effect is strong across the broad spectrum of skill levels, except for the least skilled workers, where the job tenure earnings profile is noticeably flatter. This in turn suggests that internal labour markets have broad relevance across the whole of the skill spectrum, but with somewhat less importance for the least skilled workers.