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Tenure, business cycle and the wage-setting process

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  • Arozamena, Leandro
  • Centeno, Mario

Abstract

We analyze the interaction between job tenure and external labor market conditions in wage determination. First, we introduce a model that combines job matching with business-cycle effects. As the employment relationship progresses, the worker appropriates a portion of the value of the match-specific human capital she accumulates, gradually becoming shielded from the cyclical variations in external labor market conditions: the employment relationship is progressively "internalized". Then, we present empirical evidence supporting this prediction: the elasticity of wages to the unemployment rate decreases with tenure. This finding is robust to different specifications that allow for job heterogeneity, and it contributes to the interpretation of recent evidence of changes in the effect of the business cycle on wages.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 50 (2006)
Issue (Month): 2 (February)
Pages: 401-424

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Handle: RePEc:eee:eecrev:v:50:y:2006:i:2:p:401-424

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References

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  1. Brown, James N & Light, Audrey, 1992. "Interpreting Panel Data on Job Tenure," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 219-57, July.
  2. Neumark, David & Polsky, Daniel & Hansen, Daniel, 1999. "Has Job Stability Declined Yet? New Evidence for the 1990s," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages S29-64, October.
  3. Flinn, Christopher J, 1986. "Wages and Job Mobility of Young Workers," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S88-S110, June.
  4. David G. Blanchflower & Andrew J. Oswald, 1990. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc.
    • Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
  5. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  6. Gibbons, Robert & Katz, Lawrence F., 1991. "Layoffs and Lemons," Scholarly Articles 3442782, Harvard University Department of Economics.
  7. Bowlus, Audra J, 1995. "Matching Workers and Jobs: Cyclical Fluctuations in Match Quality," Journal of Labor Economics, University of Chicago Press, vol. 13(2), pages 335-50, April.
  8. Marianne Bertrand, 2004. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 723-766, October.
  9. Blank, Rebecca M, 1990. "Why Are Wages Cyclical in the 1970s?," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages 16-47, January.
  10. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  11. Robert H. Topel & Michael P. Ward, 1988. "Job Mobility and the Careers of Young Men," NBER Working Papers 2649, National Bureau of Economic Research, Inc.
  12. Joseph G. Altonji & Nicolas Williams, 2005. "Do wages rise with job seniority? A reassessment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 58(3), pages 370-397, April.
  13. Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
  14. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-88, August.
  15. Katharine G. Abraham & John C. Haltiwanger, 1995. "Real Wages and the Business Cycle," Journal of Economic Literature, American Economic Association, vol. 33(3), pages 1215-1264, September.
  16. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 1-25, February.
  17. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  18. Felli, Leonardo & Harris, Christopher, 1996. "Learning, Wage Dynamics, and Firm-Specific Human Capital," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 838-68, August.
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Cited by:
  1. Anne-Gisèle Privat, 2005. "L'avenir des retraites en France: Evalutation de l'impact des réformes de 1993 et de 2033 à l'aide du modèle de microsimulation Artémis," Sciences Po publications info:hdl:2441/f4rshpf3v1u, Sciences Po.
  2. Christopher Pissarides, 2007. "The unemployment volatility puzzle: is wage stickiness the answer?," LSE Research Online Documents on Economics 4460, London School of Economics and Political Science, LSE Library.
  3. Kilponen, Juha & Vanhala, Juuso, 2009. "Productivity and job flows: heterogeneity of new hires and continuing jobs in the business cycle," Working Paper Series 1080, European Central Bank.
  4. Christopher Pissarides, 2006. "Unemployment and hours of work: the North Atlantic divide revisited," LSE Research Online Documents on Economics 4461, London School of Economics and Political Science, LSE Library.
  5. Mário Centeno & Álvaro A. Novo & Carla Machado, 2007. "Job Creation and Destruction in Portugal," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  6. Anabela Carneiro & Pedro Portugal, 2004. "Workers' Flows and Real Wage Cyclicality," Working Papers w200409, Banco de Portugal, Economics and Research Department.
  7. repec:spo:wpecon:info:hdl:2441/f4rshpf3v1umfa09lat214kj4 is not listed on IDEAS

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