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Mighty Good Thing: The Returns to Tenure

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  • Alan Manning

Abstract

The human capital earnings function is part of the toolbox of labour economists. Returns to labour market experience are interpreted as returns to general human capital, and returns to job tenure as returns to job-specific human capital. There is, however, an awareness that there are other models capable of explaining these correlations, notably a search or 'job-shopping' model and a number of papers have attempted to distinguish the two hypotheses using mostly data on wage growth for job-stayers and movers. The results have been mixed. This paper takes a different approach to the same issue. It shows how a simple search model can be used to predict the nature of the relationship between wages, experience and tenure if one has data on labour market transition rates. This is what is done in this paper using data from the UK Labour Force Survey. The conclusions are that while part of the returns to experience can be explained by the search model, there is a substantial part that must be interpreted as a 'true' return to experience. In contrast, we show how the search model over-predicts the returns to tenure and the data seem broadly consistent with a model in which the 'true' returns to tenure are close to zero.

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File URL: http://cep.lse.ac.uk/pubs/download/DP0383.pdf
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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0383.

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Date of creation: Mar 1998
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Handle: RePEc:cep:cepdps:dp0383

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-22, February.
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Cited by:
  1. Piekkola, Hannu, 2002. "Transferability of Human Capital and Job Switches," Discussion Papers 794, The Research Institute of the Finnish Economy.
  2. Cornelia Luchsinger & Jörg Wild & Rafael Lalive, 2001. "Do Wages Rise with Job Seniority? The Swiss Case," CEPE Working paper series 01-07, CEPE Center for Energy Policy and Economics, ETH Zurich.
  3. Alan Manning & Joanna Swaffield, 2005. "The Gender Gap in Early Career Wage Growth," CEP Discussion Papers dp0700, Centre for Economic Performance, LSE.

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