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Why Pay Seniority Wages?

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  • Zwick, Thomas

Abstract

This paper characterises establishments that pay higher seniority wages than their competitors. It tests whether seniority wages are paid on the basis of agency, human capital or efficiency wage considerations. A representative linked employeremployee panel and an innovative two-step estimation strategy are used to first calculate individual seniority wages taking into account that match quality biases tenure effects on wages. Then individual seniority wages are aggregated to the establishment level. Finally, the seniority wage indicator is explained by establishment characteristics. This contribution shows that large, profitable and establishments with a highly qualified workforce pay high seniority wages. Also collective bargaining coverage and works councils have a positive impact and the share of foreigners, training intensity and initial wage levels have a negative correlation with seniority wages. The results support an agency based motivation for seniority wages. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 09-005.

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Date of creation: 2009
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Handle: RePEc:zbw:zewdip:7531

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Keywords: Seniority Wages; Establishment Characteristics; Linked Employer-Employee Data;

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  1. Hashimoto, Masanori & Raisian, John, 1985. "Employment Tenure and Earnings Profiles in Japan and the United States," American Economic Review, American Economic Association, American Economic Association, vol. 75(4), pages 721-35, September.
  2. MARGOLIS, David N., 1995. "Cohort Effects and Returns to Seniority in France," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9559, Universite de Montreal, Departement de sciences economiques.
  3. Robert Orlowski & Regina T. Riphahn, 2008. "The East German Wage Structure after Transition," CESifo Working Paper Series 2511, CESifo Group Munich.
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  5. Hutchens, Robert, 1986. "Delayed Payment Contracts and a Firm's Propensity to Hire Older Workers," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 4(4), pages 439-57, October.
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  7. Helen Connolly & Peter Gottschalk, 2000. "Differences in Wage Growth by Education Level: Do Less Educated Workers Gain Less from Work Experience?," Boston College Working Papers in Economics, Boston College Department of Economics 473, Boston College Department of Economics, revised 26 Aug 2006.
  8. Daniel Parent, 1995. "Industry-Specific Capital and the Wage Profile: Evidence from the NLSY and the PSID," CIRANO Working Papers, CIRANO 95s-26, CIRANO.
  9. Zwick, Thomas, 2008. "The Employment Consequences of Seniority Wages," ZEW Discussion Papers 08-039, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Judith K. Hellerstein & David Neumark, 1995. "Are Earnings Profiles Steeper Than Productivity Profiles? Evidence from Israeli Firm-Level Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 89-112.
  11. Hutchens, Robert M, 1987. "A Test of Lazear's Theory of Delayed Payment Contracts," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 5(4), pages S153-70, October.
  12. James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents," NBER Working Papers 6384, National Bureau of Economic Research, Inc.
  13. Lorne Carmichael, 1981. "Firm-Specific Human Capital and Promotion Ladders," Working Papers, Queen's University, Department of Economics 452, Queen's University, Department of Economics.
  14. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc.
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