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Productivity, seniority and wages: new evidence from personnel data

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  • Flabbi, Luca
  • Ichino, Andrea

Abstract

Wages may be observed to increase with seniority because of firm-specific human capital accumulation or because of self-selection of better workers in longer jobs. In both these cases the upward sloping wage profile in cross-sectional regressions would reflect higher productivity of more senior workers. If this were true, the observation of an effect of seniority on wages would depend on the presence of controls for individual productivity. In this paper we replicate, using personnel data from a large Italian firm, the results of the pioneering work of Medoff and Abraham (1980 and 1981) in which supervisors' evaluations were used as productivity indicators. Since the validity of supervisors' evaluations as measures of productivity has been widely criticized, we extend the work of Medoff and Abraham using different direct measures of productivity based on recorded absenteeism and misconduct episodes. Both these indicators and supervisors' evaluation suggest that the observed effect of seniority on wages does not reflect a higher productivity of more senior workers. Theories in which wages are deferred for incentive or insurance reasons are therefore more likely to explain the observed upward sloping profile.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 8 (2001)
Issue (Month): 3 (June)
Pages: 359-387

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Handle: RePEc:eee:labeco:v:8:y:2001:i:3:p:359-387

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  1. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  2. 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.
  3. Dale T. Mortensen, 1978. "Specific Capital, Bargaining, and Labor Turnover," Discussion Papers 320, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Altonji, Joseph G & Shakotko, Robert A, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 437-59, July.
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  8. Milton Harris & Bengt Holmstrom, 1981. "A Theory of Wage Dynamics," Discussion Papers 488, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Joseph G. Altonji & Nicolas Williams, 1997. "Do Wages Rise with Job Seniority? A Reassessment," NBER Working Papers 6010, National Bureau of Economic Research, Inc.
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  13. 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.
  14. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
  15. Ichino, Andrea & Polo, Michele & Rettore, Enrico, 2003. "Are judges biased by labor market conditions?," European Economic Review, Elsevier, vol. 47(5), pages 913-944, October.
  16. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November.
  17. Bishop, John, 1987. "The Recognition and Reward of Employee Performance," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages S36-56, October.
  18. 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.
  19. Christopher Erickson & Andrea Ichino, 1995. "Wage Differentials in Italy: Market Forces, Institutions, and Inflation," NBER Chapters, in: Differences and Changes in Wage Structures, pages 265-306 National Bureau of Economic Research, Inc.
  20. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 703-36, December.
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