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Seniority, Experience, and Wages in the UK

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  • Nicolas Williams

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Abstract

This paper uses BHPS data to investigate the relative importance of seniority and experience in determining male wages in the UK labor market. Using both the Altonji and Shakotko instrumental variable and the Topel two-step estimation approaches, I find that tenure plays a modest role, increasing wages by about 1 percent each year over the first 10 years on the job. General labor market experience has a larger role, so that after 30 years wages have increased by about 60 percent. Individual and job match heterogeneity are important, and should be carefully modeled when estimating wage equations for the British labor market. These results are remarkably similar to the most recent evidence about these relationships in the US labor market. After extending the standard model to include industry experience, I find that the estimated impact of job seniority becomes negligible for nonunion workers. Instead, wages rise about 10 percent with the accumulation of 10 years of industry experience. One plausible explanation is that for nonunion workers, productivity-enhancing human capital investments are not job specific, but rather transferable within a particular industry. For union workers, job specific seniority plays a more important role, as 10 years of seniority raises wages by about twice as much as for nonunion workers. Further, unobservable individual and job match heterogeneity is unimportant when estimating union worker wage equations. I find weak evidence that at least some of this seniority effect for union workers remains after including industry experience in the analysis.

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Bibliographic Info

Paper provided by University of Cincinnati, Department of Economics in its series University of Cincinnati, Economics Working Papers Series with number 2004-06.

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Length: 29 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cin:ucecwp:2004-06

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  1. Addison, John T. & Belfield, Clive R., 2003. "Union Voice," IZA Discussion Papers 862, Institute for the Study of Labor (IZA).
  2. Arthur H. Goldsmith & Jonathan R. Veum, 2002. "Wages and the Composition of Experience," Southern Economic Journal, Southern Economic Association, vol. 69(2), pages 429-443, October.
  3. Christian Dustmann & Costas Meghir, 1999. "Wages, experience and seniority," IFS Working Papers W99/01, Institute for Fiscal Studies.
  4. John M. Barron & Mark C. Berger & Dan A. Black, 1997. "On-the-Job Training," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number ojt.
  5. David N. Margolis, 1995. "Cohort Effects and Returns to Seniority in France," CIRANO Working Papers 95s-46, CIRANO.
  6. 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.
  7. Bruce E. Kaufman, 2005. "What Do Unions Do?--Evaluation and Commentary," Journal of Labor Research, Transaction Publishers, vol. 26(4), pages 555-596, November.
  8. Barry T. Hirsch, 2004. "What Do Unions Do for Economic Performance?," Journal of Labor Research, Transaction Publishers, vol. 25(3), pages 415-456, July.
  9. Katharine G. Abraham & Henry S. Farber, 1987. "Returns to Seniority in Union and Nonunion Jobs: A New Look at the Evidence," NBER Working Papers 2368, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
  12. Farber, Henry S., 1999. "Mobility and stability: The dynamics of job change in labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 37, pages 2439-2483 Elsevier.
  13. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  14. Jovanovic, Boyan, 1979. "Firm-specific Capital and Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1246-60, December.
  15. Joseph G. Altonji & Nicolas Williams, 1997. "Do Wages Rise with Job Seniority? A Reassessment," NBER Working Papers 6010, National Bureau of Economic Research, Inc.
  16. Alexandros Zangelidis, 2008. "Seniority Profiles in Unionized Workplaces: Do Unions Still have the Edge?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(3), pages 327-345, 06.
  17. Booth, Alison L & Frank, Jeff, 1994. "Seniority, Earnings and Unions," CEPR Discussion Papers 1007, C.E.P.R. Discussion Papers.
  18. Light, Audrey, 1998. "Estimating Returns to Schooling: When Does the Career Begin?," Economics of Education Review, Elsevier, vol. 17(1), pages 31-45, February.
  19. Cingano, Federico, 2003. "Returns to specific skills in industrial districts," Labour Economics, Elsevier, vol. 10(2), pages 149-164, April.
  20. Joseph Altonji & R. Shakotko, 1985. "Do Wages Rise with Job Seniority?," Working Papers 567, Princeton University, Department of Economics, Industrial Relations Section..
  21. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  22. Hildreth, Andrew, 1999. " What Has Happened to the Union Wage Differential in Britain in the 1990s?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(1), pages 5-31, February.
  23. Light, Audrey, 2001. "In-School Work Experience and the Returns to Schooling," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 65-93, January.
  24. Alexandros Zangelidis, 2008. "Occupational And Industry Specificity Of Human Capital In The British Labour Market," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(4), pages 420-443, 09.
  25. James Coleman, 1998. "The effect of tenure on earnings for males: a public/private analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 5(11), pages 707-710.
  26. 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.
  27. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-22, February.
  28. Alison L. Booth & Marco Francesconi & Carlos Garcia-Serrano, 1999. "Job tenure and job mobility in Britain," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 53(1), pages 43-70, October.
  29. Marshall, Robert C & Zarkin, Gary A, 1987. "The Effect of Job Tenure on Wage Offers," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 301-24, July.
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Citations

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Cited by:
  1. Carrillo-Tudela, Carlos & Kaas, Leo, 2011. "Wage Dispersion and Labor Turnover with Adverse Selection," IZA Discussion Papers 5936, Institute for the Study of Labor (IZA).
  2. Anja Deelen, 2011. "Wage-Tenure Profiles and Mobility," CPB Discussion Paper 198, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Devereux, Paul J. & Hart, Robert A. & Roberts, J. Elizabeth, 2013. "Job Spells, Employer Spells, and Wage Returns to Tenure," IZA Discussion Papers 7384, Institute for the Study of Labor (IZA).
  4. 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.
  5. G. Sulis, 2009. "Wage Returns to Experience and Tenure for Young Men in Italy," Working Paper CRENoS 200903, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  6. repec:ese:iserwp:2010-43 is not listed on IDEAS
  7. Anja Deelen, 2012. "Wage-Tenure Profiles and Mobility," De Economist, Springer, vol. 160(2), pages 141-155, June.
  8. Michail Veliziotis, 2013. "Trade Unions and Unpaid Overtime in Britain," Working Papers 20131304, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  9. Akyol, Ali C. & Verwijmeren, Patrick, 2013. "Human capital costs, firm leverage, and unemployment rates," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 464-481.

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