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Tenure and output

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  • Shaw, Kathryn
  • Lazear, Edward P.

Abstract

A key tenet of the theory of human capital is that investment in skills results in higher productivity. The previous literature has estimated the degree of investment in human capital for individuals by looking at individual wage growth as a proxy for productivity growth. In this paper, we have both wage and personal productivity data, and thus are able to measure of the increase in workers' output with tenure as evidence of the degree of learning on the job. The data is from an autoglass company. Most of production occurs at the individual level so measures of output are clear. We find a very steep learning curve in the first eight months on the job: output is 53 percent higher after eight months than it is initially. Our data show that these output gains with tenure are not reflected in equal percentage pay gains: pay profiles are much flatter than output profiles in the first year and a half on the job. For these data, using wage profiles significantly underestimates the amount of investment compared to the gains evident in output-tenure profiles. The pattern of productivity rising more rapidly than pay reverses after two years of tenure, although our evidence on this point is less reliable. Worker selection is also important. Workers who stay longer have higher output levels and faster early learning.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 15 (2008)
Issue (Month): 4 (August)
Pages: 704-723

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Handle: RePEc:eee:labeco:v:15:y:2008:i:4:p:704-723

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Web page: http://www.elsevier.com/locate/labeco

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Keywords: Productivity Age-earnings profile Tenure Firm specific skills;

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References

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  1. Hellerstein, J-K & Neumark, D, 1995. "Sex, Wages, and Productivity : an Empirical Analysis of Israeli, Firm-Level Data," Papers 9501, Michigan State - Econometrics and Economic Theory.
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  3. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
  4. Hutchens, Robert M, 1989. "Seniority, Wages and Productivity: A Turbulent Decade," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 49-64, Fall.
  5. Judith Hellerstein & David Neumark, 2004. "Production Function and Wage Equation Estimation with Heterogenous Labor: Evidence from a New Matched Employer-Employee Dataset," Working Papers 04-05, Center for Economic Studies, U.S. Census Bureau.
  6. Hellerstein, Judith K & Neumark, David & Troske, Kenneth R, 1999. "Wages, Productivity, and Worker Characteristics: Evidence from Plant-Level Production Functions and Wage Equations," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 409-46, July.
  7. C. Lanier Benkard, 2000. "Learning and Forgetting: The Dynamics of Aircraft Production," American Economic Review, American Economic Association, vol. 90(4), pages 1034-1054, September.
  8. Neal, Derek, 1995. "Industry-Specific Human Capital: Evidence from Displaced Workers," Journal of Labor Economics, University of Chicago Press, vol. 13(4), pages 653-77, October.
  9. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-76, February.
  10. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-97, June.
  11. Richard B. Freeman & Morris M. Kleiner, 1998. "The Last American Shoe Manufacturers: Changing the Method of Pay to Survive Foreign Competition," NBER Working Papers 6750, National Bureau of Economic Research, Inc.
  12. Edward P. Lazear, 2003. "Firm-Specific Human Capital: A Skill-Weights Approach," NBER Working Papers 9679, National Bureau of Economic Research, Inc.
  13. Robert Gibbons & Michael Waldman, 2004. "Task-Specific Human Capital," American Economic Review, American Economic Association, vol. 94(2), pages 203-207, May.
  14. Joseph Altonji & R. Shakotko, 1985. "Do Wages Rise with Job Seniority?," Working Papers 567, Princeton University, Department of Economics, Industrial Relations Section..
  15. 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.
  16. Linda Argote & Sara L. Beckman & Dennis Epple, 1990. "The Persistence and Transfer of Learning in Industrial Settings," Management Science, INFORMS, vol. 36(2), pages 140-154, February.
  17. Lazear, Edward, 2003. "Firm-Specific Human Capital: A Skill-Weights Approach," IZA Discussion Papers 813, Institute for the Study of Labor (IZA).
  18. Kathryn L. Shaw, 1984. "A Formulation of the Earnings Function Using the Concept of Occupational Investment," Journal of Human Resources, University of Wisconsin Press, vol. 19(3), pages 319-340.
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Citations

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Cited by:
  1. Andries De Grip & Jan Sauermann, 2012. "The Effects of Training on Own and Co‐worker Productivity: Evidence from a Field Experiment," Economic Journal, Royal Economic Society, vol. 122(560), pages 376-399, 05.
  2. Grip Andries de & Sauermann Jan & Sieben Inge, 2011. "The role of peers in estimating tenure-performance profiles: evidence from personnel data," Research Memorandum 052, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  3. Irarrazabal, Alfonso & Moxnes, Andreas & Ulltveit-Moe, Karen-Helene, 2009. "Heterogeneous firms or heterogeneous workers? Implications for the exporter premium and the impact of labor reallocation on productivity," CEPR Discussion Papers 7577, C.E.P.R. Discussion Papers.
  4. Christian Pfeifer, 2009. "Adjustment of Deferred Compensation Schemes, Fairness Concerns, and Hiring of Older Workers," Working Paper Series in Economics 151, University of Lüneburg, Institute of Economics.
  5. Pfeifer, Christian, 2009. "An Intra-Firm Perspective on Wage Profiles and Employment of Older Workers with Special Reference to Human Capital and Deferred Compensation," Hannover Economic Papers (HEP) dp-413, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  6. Daniel van Vuuren & Paul de Hek, 2010. "Are older workers overpaid? A literature review," CPB Discussion Paper 165, CPB Netherlands Bureau for Economic Policy Analysis.
  7. Nakabayashi, Masaki, 2011. "Schooling, employer learning, and internal labor market effect: Wage dynamics and human capital investment in the Japanese steel industry, 1930-1960s," MPRA Paper 30749, University Library of Munich, Germany, revised 06 May 2011.
  8. Merlino, Luca Paolo & Parrotta, Pierpaolo & Pozzoli, Dario, 2014. "Gender Differences in Sorting," Working Papers 01-2014, Copenhagen Business School, Department of Economics.

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