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Performance, seniority, and wages: formal salary systems and individual earnings profiles

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  • Dohmen, Thomas J.

Abstract

This paper replicates studies by Medoff and Abraham (1980, 1981) and Flabbi and Ichino (2001) using personnel data from the Dutch national aircraft manufacturer Fokker. It shows how a formal salary system, as is widely used by large firms, brings about that seniority-wage profiles are largely independent of controls for reported performance in cross-sectional wage regressions even though supervisors' evaluations shape life-cycle earnings profiles. Performance ratings determine how fast a worker climbs the firm's career and wage ladder. The paper also reveals that real wage growth depends on the employer's prosperity. Furthermore it demonstrates that formal salary systems cause serial correlation in wage growth and 'Green Card' effects.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 11 (2004)
Issue (Month): 6 (December)
Pages: 741-763

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Handle: RePEc:eee:labeco:v:11:y:2004:i:6:p:741-763
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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Find related papers by JEL classification:
  • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
  • 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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Cited by:

  1. T. Dohmen & H. Lehmann & M. E. Schaffer, 2008. "Wage policies of a Russian firm and the financial crisis of 1998: Evidence from personnel data â 1997 to 2002," Working Papers 628, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. Beartice Brunner & Andreas Kuhn, 2009. "To Shape the Future: How Labor Market Entry Conditions Affect Individuals’s Long-Run Wage Profiles," NRN working papers 2009-29, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  3. Beatrice Brunner & Andreas Kuhn, 2009. "To shape the future: How labor market entry conditions affect individuals' long-run wage profiles," IEW - Working Papers 457, Institute for Empirical Research in Economics - University of Zurich.
  4. Guido Friebel & Elena Panova, 2008. "Insider Privatization and Careers: A Study of a Russian Firm in Transition," NBER Chapters, in: The Analysis of Firms and Employees: Quantitative and Qualitative Approaches, pages 253-266 National Bureau of Economic Research, Inc.
  5. Serneels, Pieter, 2008. "Human capital revisited: The role of experience and education when controlling for performance and cognitive skills," Labour Economics, Elsevier, vol. 15(6), pages 1143-1161, December.
  6. Christian Pfeifer, 2009. "Adjustment of Deferred Compensation Schemes, Fairness Concerns, and Hiring of Older Workers," Working Paper Series in Economics 151, University of Lüneburg, Institute of Economics.
  7. Bossler, Mario & Grunau, Philipp, 2016. "Asymmetric information in external versus internal promotions," IAB Discussion Paper 201611, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  8. Silva, António Dias da & van der Klaauw, Bas, 2006. "Wage Dynamics and Promotions Inside and Between Firms," IZA Discussion Papers 2351, Institute for the Study of Labor (IZA).
  9. Borghans Lex & Kriechel Ben, 2007. "Wage Structure and Labor Mobility in the Netherlands 1999-2003," ROA Research Memorandum 004, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  10. Heywood, John S. & Siebert, W. Stanley, 2009. "Understanding the Labour Market for Older Workers: A Survey," IZA Discussion Papers 4033, Institute for the Study of Labor (IZA).
  11. Peter Cappelli & Martin Conyon, 2016. "What Do Performance Appraisals Do?," NBER Working Papers 22400, National Bureau of Economic Research, Inc.
  12. Grund, Christian & Walter, Tanja, 2013. "Management Compensation and the Economic Crisis: Longitudinal Evidence from the German Chemical Sector," IZA Discussion Papers 7435, Institute for the Study of Labor (IZA).
  13. Brunner, Beatrice & Kuhn, Andreas, 2009. "To Shape the Future: How Labor Market Entry Conditions Affect Individuals' Long-Run Wage Profiles," IZA Discussion Papers 4601, Institute for the Study of Labor (IZA).

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