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Do Wages Rise with Job Seniority? The Swiss Case

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  • Cornelia Luchsinger

    ()
    (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Jörg Wild

    (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Rafael Lalive

Abstract

Whether or not seniority has a substantial effect on wages has been the subject of much controversy in the past decade, mainly in the U.S. Several economists have noted that unobserved heterogeneity across individuals and across job matches may produce inconsistent OLS-estimates of the effect of tenure on wages and turnover. Hence, labor economists have put forward two empirical strategies to deal with unobserved heterogeneity: Altonji and Shakotko (1987) use an instrumental variable for tenure, which is uncorrelated with the individual and job-specific component of the error term, but highly correlated with job tenure, whereas Topel’s (1991) basic idea is that within-job wage growth combines the returns to general and job-specific experience. These two empirical strategies revealed different returns to seniority and experience for the U.S. labor market. Our goal is, on one hand, to use the different methodologies for the Swiss labor market and, on the other hand, to evaluate the sources of these differences. Thus, we replicate these methods with Swiss data (Swiss Labor Force Survey, SLFS). In a first step, we estimate returns to tenure and experience with the standard regression method, OLS. Subsequently, we apply the Topel and the Altonji/Shakotko estimator, and use different specifications for each. We find that (i) Topel’s approach delivers similar returns to tenure to OLS, i.e. about 8% within ten years of job seniority, while the Altonji/Shakotko method delivers substantially lower returns (4%). (ii) Returns to tenure are minor in Switzerland compared to the U.S.

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Bibliographic Info

Paper provided by CEPE Center for Energy Policy and Economics, ETH Zurich in its series CEPE Working paper series with number 01-07.

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Length: 22 pages
Date of creation: Mar 2001
Date of revision:
Handle: RePEc:cee:wpcepe:01-07

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Web page: http://www.cepe.ethz.ch
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Keywords: human capital; returns to experience; returns to tenure;

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References

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  1. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  2. Williams, Nicolas, 1991. "Reexamining the Wage, Tenure and Experience Relationship," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 512-17, August.
  3. Alan Manning, 1998. "Mighty good thing: the returns to tenure," LSE Research Online Documents on Economics 20291, London School of Economics and Political Science, LSE Library.
  4. Christian Dustmann & Costas Meghir, 2005. "Wages, Experience and Seniority," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 77-108.
  5. 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.
  6. 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.
  7. 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.
  8. Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February.
  9. Joshua D. Angrist & Alan B. Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," NBER Working Papers 3572, National Bureau of Economic Research, Inc.
  10. Griliches, Zvi, 1979. "Sibling Models and Data in Economics: Beginnings of a Survey," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S37-64, October.
  11. Orley Ashenfelter & Cecilia Rouse, 1998. "Income, Schooling, And Ability: Evidence From A New Sample Of Identical Twins," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 253-284, February.
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Cited by:
  1. Roland Amann, 2004. "Self-Selection and Wage-Tenure Profiles for Heterogeneous Labor," Working Papers of the Research Group Heterogenous Labor 04-16, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
  2. Robert Orlowski & Regina T. Riphahn, 2009. "The East German wage structure after transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(4), pages 629-659, October.
  3. Marco Semadeni, 2003. "Energy storage as an essential part of sustainable energy systems," CEPE Working paper series 03-24, CEPE Center for Energy Policy and Economics, ETH Zurich.
  4. Daniel Spreng & Marco Semadeni, 2001. "Energie, Umwelt und die 2000 Watt Gesellschaft," CEPE Working paper series 01-11, CEPE Center for Energy Policy and Economics, ETH Zurich.
  5. Silvia Banfi & Massimo Filippini & Andrea Horehájová, 2007. "Hedonic Price Functions for Zurich and Lugano with Special Focus on Electrosmog," CEPE Working paper series 07-57, CEPE Center for Energy Policy and Economics, ETH Zurich.
  6. Florian Zainhofer, 2007. "Life Cycle Portfolio Choice: A Swiss Perspective," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(II), pages 187-238, June.

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