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Wage Progression of Less Skilled Workers in Canada: Evidence from the SLID (1993-1998)

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  • Zhang, Xuelin
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    Abstract

    The wage progression of less skilled workers is of particular policy interest in light of evidence of skill-biased technology changes. There exist two conflicting views regarding the wage progression of less skilled workers. One view believes that work experience is the driving force for wage growth of less skilled workers, so effective policies should encourage workers to participate in the labour market and accumulate work experience. The other view stresses that less skilled workers are usually locked into dead-end jobs in which wages are stagnant and policies that facilitate job shopping (changing jobs and employers) would be desirable. Job tenure is a key factor in testing the hypothesis that less skilled workers are locked into dead-end jobs. If the return to tenure is zero, the hypothesis cannot be rejected. An extended human capital model of wage growth for less skilled workers is estimated using data from the Survey of Labour and Income Dynamics (SLID) 1993 to 1998. In order to compare the wage growth mechanisms for workers with different skill endowments, the model is also estimated for workers with higher skill levels. The result implies that the return to job tenure for less skilled workers is significantly different from zero. This is inconsistent with the view that less skilled workers are locked into dead-end jobs. The return to job tenure is also found to be greater than the return to total labour market experience for less skilled workers. This finding supports the notion that firm-specific human capital acquired by less skilled workers substitutes for their generally low human capital endowments and the accumulation of firm-specific human capital by less skilled workers greatly improves their earnings prospect.

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    Bibliographic Info

    Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 2002194e.

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    Date of creation: 06 Dec 2002
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    Handle: RePEc:stc:stcp3e:2002194e

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    Keywords: Labour; Occupations; Wages; salaries and other earnings;

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    1. Joseph Altonji & R. Shakotko, 1985. "Do Wages Rise with Job Seniority?," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 567, Princeton University, Department of Economics, Industrial Relations Section..
    2. William T. Dickens & Kevin Lang, 1985. "A Test of Dual Labor Market Theory," NBER Working Papers 1314, National Bureau of Economic Research, Inc.
    3. Bernt Bratsberg & Dek Terrell, 1998. "Experience, Tenure, and Wage Growth of Young Black and White Men," Journal of Human Resources, University of Wisconsin Press, vol. 33(3), pages 658-682.
    4. Paul Beaudry & David Green, 1997. "Cohort Patterns in Canadian Earnings: Assessing the Role of Skill Premia in Inequality Trends," NBER Working Papers 6132, National Bureau of Economic Research, Inc.
    5. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1377-98, November.
    6. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(1), pages 145-76, February.
    7. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(3), pages 410-42, June.
    8. Audrey Light & Kathleen McGarry, 1998. "Job Change Patterns And The Wages Of Young Men," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 276-286, May.
    9. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
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