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Productivity, Seniority and Wages: New Evidence from Personnel Data

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Author Info
Flabbi, Luca
Ichino, Andrea

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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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1966.

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Date of creation: Sep 1998
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Handle: RePEc:cpr:ceprdp:1966

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Related research
Keywords: Productivity; returns to seniority; Wage Determination;

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Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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  1. Pekkarinen, Tuomas & Vartiainen, Juhana, 2002. "Gender Differences in Job Assignment and Promotion in a Complexity Ladder of Jobs," Working Paper Series 184, Trade Union Institute for Economic Research. [Downloadable!]
    Other versions:
  2. S. Iranzo & Fabiano Schivardi & E. Tosetti, 2006. "Skill dispersion and firm productivity: an analysis with employer-employee matched data," Working Paper CRENoS 200617, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia. [Downloadable!]
    Other versions:
  3. Dohmen, Thomas J., 2003. "Performance, Seniority and Wages: Formal Salary Systems and Individual Earnings Profiles," IZA Discussion Papers 935, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Alberto Bayo-Moriones & Jose E. Galdon-Sanchez & Maia Güell, 2004. "Is Seniority-Based Pay Used as a Motivation Device? Evidence from Plant Level Data," CEP Discussion Papers dp0646, Centre for Economic Performance, LSE. [Downloadable!]
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  5. Matthias Weiss, 2008. "Sick Leave and the Composition of Work Teams," MEA discussion paper series 07149, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
  6. Christian Grund, 2002. "The Wage Policy of Firms - Comparative Evidence for the U.S. and Germany from Personnel Data," Bonn Econ Discussion Papers bgse30_2002, University of Bonn, Germany. [Downloadable!]
    Other versions:
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