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Seniority, Experience, and Wages in the UK

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Author Info
Nicolas Williams ()
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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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
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Handle: RePEc:cin:ucecwp:2004-06

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  1. 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Alison L. Booth & Marco Francesconi & Carlos Garcia-Serrano, 1999. "Job tenure and job mobility in Britain," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 53(1), pages 43-70, October.
  4. Light, Audrey, 1998. "Estimating Returns to Schooling: When Does the Career Begin?," Economics of Education Review, Elsevier, vol. 17(1), pages 31-45, February. [Downloadable!] (restricted)
  5. Acemoglu, Daron & Pischke, Jorn-Steffen, 1999. "Beyond Becker: Training in Imperfect Labour Markets," Economic Journal, Royal Economic Society, vol. 109(453), pages F112-42, February. [Downloadable!] (restricted)
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  6. Huang, Li-Hsuan, 2003. " Industry-Specific Human Capital, Occupation and Firm Size: Evidence from Taiwan," Small Business Economics, Springer, vol. 20(3), pages 205-18, May. [Downloadable!] (restricted)
  7. Katharine G. Abraham & Henry S. Farber, 1987. "Job Duration, Seniority, and Earnings," NBER Working Papers 1819, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
  9. Christian Dustmann & Costas Meghir, 2001. "Wages, experience and seniority," IFS Working Papers W01/01, Institute for Fiscal Studies. [Downloadable!]
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  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. [Downloadable!] (restricted)
  11. Joseph G. Altonji & Nicolas Williams, 1997. "Do Wages Rise with Job Seniority? A Reassessment," NBER Working Papers 6010, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Christian Dustmann & Sonia C. Pereira, 2005. "Wage Growth and Job Mobility in the U.K. and Germany," IZA Discussion Papers 1586, Institute for the Study of Labor (IZA). [Downloadable!]
  13. David N. Margolis, 1995. "Cohort Effects and Returns to Seniority in France," CIRANO Working Papers 95s-46, CIRANO. [Downloadable!]
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  14. Altonji, Joseph G & Shakotko, Robert A, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Blackwell Publishing, vol. 54(3), pages 437-59, July. [Downloadable!] (restricted)
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  15. Cingano, Federico, 2003. "Returns to specific skills in industrial districts," Labour Economics, Elsevier, vol. 10(2), pages 149-164, April. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
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  17. 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. [Downloadable!] (restricted)
  18. Theodossiou, I & Williams, H, 1998. "Employer-Provided Training and Tenure-Earnings," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(3), pages 258-72, August. [Downloadable!] (restricted)
  19. Coleman, James S, 1998. "The Effect of Tenure on Earnings for Males: A Public/Private Analysis," Applied Economics Letters, Taylor and Francis Journals, vol. 5(11), pages 707-10, November. [Downloadable!] (restricted)
  20. Booth, Alison L & Frank, Jeff, 1996. "Seniority, Earnings and Unions," Economica, London School of Economics and Political Science, vol. 63(252), pages 673-86, November. [Downloadable!] (restricted)
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  21. Jovanovic, Boyan, 1979. "Firm-specific Capital and Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1246-60, December. [Downloadable!] (restricted)
  22. Daniel Parent, 1995. "Industry-Specific Capital and the Wage Profile: Evidence from the NLSY and the PSID," CIRANO Working Papers 95s-26, CIRANO. [Downloadable!]
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