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Tenure, Business Cycle and the Wage-Setting Process

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Abstract

We analyze the interaction between job tenure and external labor market conditions in wage determination. First, we introduce a model that combines job matching with business-cycle effects. As the employment relationship progresses, the worker appropriates a portion of the value of the match-specific human capital she accumulates, gradually becoming shielded from the cyclical variations in external labor market conditions: the employment relationship is progressively "internalized". Then, we present empirical evidence supporting this prediction: the elasticity of wages to the unemployment rate decreases with tenure. This finding is robust to different specifications that allow for job heterogeneity, and it contributes to the interpretation of recent evidence of changes in the effect of the business cycle on wages.

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  • Leandro Arozamena, 2001. "Tenure, Business Cycle and the Wage-Setting Process," Working Papers w200108, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w200108
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    Cited by:

    1. Christopher A. Pissarides, 2007. "Unemployment And Hours Of Work: The North Atlantic Divide Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 1-36, February.
    2. Álvaro A. Novo & Mário Centeno & Carla Machado, 2007. "Job Creation and Destruction in Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    3. Anne-Gisèle Privat, 2005. "L'avenir des retraites en France: Evalutation de l'impact des réformes de 1993 et de 2033 à l'aide du modèle de microsimulation Artémis," Sciences Po publications info:hdl:2441/f4rshpf3v1u, Sciences Po.
    4. Anne-Gisèle Privat & Sophie Pennec & Thierry Debrand, 2003. "Un modèle de micro-simulation pour la projection des retraites du régime général," Économie et Prévision, Programme National Persée, vol. 160(4), pages 215-230.
    5. Romano, Richard E. & Tampieri, Alessandro, 2016. "Arts vs engineering: Choosing consumption of and investment in education," Research in Economics, Elsevier, vol. 70(3), pages 493-510.
    6. Bauer, Anja & Lochner, Benjamin, 2020. "History dependence in wages and cyclical selection: Evidence from Germany," Labour Economics, Elsevier, vol. 67(C).
    7. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
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    9. Bussolo Maurizio & Lokshin Michael M. & Torre Iván & Winkler Hernan & Capelle Damien, 2023. "Explaining the Evolution of Job Tenure in Europe, 1995–2020," IZA Journal of Labor Policy, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 13(1), pages 1-32, January.
    10. Anabela Carneiro & Pedro Portugal, 2004. "Workers' Flows and Real Wage Cyclicality," CEF.UP Working Papers 0402, Universidade do Porto, Faculdade de Economia do Porto.
    11. Kilponen, Juha & Vanhala, Juuso, 2009. "Productivity and job flows: heterogeneity of new hires and continuing jobs in the business cycle," Bank of Finland Research Discussion Papers 15/2009, Bank of Finland.
    12. repec:spo:wpecon:info:hdl:2441/f4rshpf3v1umfa09lat214kj4 is not listed on IDEAS
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    14. Matthew D. Baird, 2017. "Labor Supply Estimation Biases From Disregarding Nonwage Benefits," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 1064-1090, April.
    15. Bandopadhyay, Titas Kumar, 2014. "Efficiency Wage in the Frictional Labour Market- A Theoretical Analysis," MPRA Paper 60124, University Library of Munich, Germany.
    16. Bandopadhyay, Titas Kumar, 2014. "Efficiency Wage and Endogenous Job Destruction in the DMP Model----- an Extension," MPRA Paper 59564, University Library of Munich, Germany.
    17. Bandopadhyay, Titas Kumar, 2014. "Labour Policies In The DMP Model—A Theoretical Analysis," MPRA Paper 59622, University Library of Munich, Germany.

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