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Earnings and seniority in Japan: A re-appraisal of the existing evidence and a comparison with the UK

  • Brunello, Giorgio
  • Ariga, Kenn

Standard estimates of earnings profiles ignore the fact that, with unobserved heterogeneity, cross-section evidence need not reflect the `true' relationship between earnings and tenure. In this paper we argue that the observation of the position filled by an employee in the firm hierarchy is informative about both his/her quality and the quality of his/her match. Under certain assumptions, this information can be used to construct an unbiased estimator of the effects of tenure on earnings growth. We apply this simple idea to Japanese and UK data. We find that tenure effects on earnings are positive but smaller than the effects estimated with the traditional approach. In a comparative perspective, we also find that UK and Japanese earnings profiles are rather similar in banking and finance and remarkably different in manufacturing.

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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 4 (1997)
Issue (Month): 1 (March)
Pages: 47-69

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Handle: RePEc:eee:labeco:v:4:y:1997:i:1:p:47-69
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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  1. Lorne Carmichael, 1981. "Firm-Specific Human Capital and Promotion Ladders," Working Papers 452, Queen's University, Department of Economics.
  2. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-97, June.
  3. Devine, Theresa J. & Kiefer, Nicolas M., 1991. "Empirical Labor Economics: The Search Approach," OUP Catalogue, Oxford University Press, number 9780195059366.
  4. James L. Medoff & Katharine G. Abraham, 1980. "Experience, Performance, and Earnings," NBER Working Papers 0278, National Bureau of Economic Research, Inc.
  5. Sloane, P J & Theodossiou, I, 1993. "Gender and Job Tenure Effects on Earnings," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(4), pages 421-37, November.
  6. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-76, February.
  7. Altonji, Joseph G & Shakotko, Robert A, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 437-59, July.
  8. repec:fth:harver:1532 is not listed on IDEAS
  9. Collier, P & Knight, J B, 1985. "Seniority Payments, Quit Rates, and Internal Labour Markets in Britain and Japan," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(1), pages 19-32, February.
  10. Clark, Robert L & Ogawa, Naohiro, 1992. "Employment Tenure and Earnings Profiles in Japan and the United States: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 336-45, March.
  11. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
  12. Marshall, Robert C & Zarkin, Gary A, 1987. "The Effect of Job Tenure on Wage Offers," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 301-24, July.
  13. Hersch, Joni & Reagan, Patricia, 1990. "Job Match, Tenure and Wages Paid by Firms," Economic Inquiry, Western Economic Association International, vol. 28(3), pages 488-507, July.
  14. MacLeod, W Bentley & Malcomson, James M, 1988. "Reputation and Hierarchy in Dynamic Models of Employment," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 832-54, August.
  15. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  16. Waldman, Michael, 1984. "Worker Allocation, Hierarchies and the Wage Distribution," Review of Economic Studies, Wiley Blackwell, vol. 51(1), pages 95-109, January.
  17. Hashimoto, Masanori & Raisian, John, 1985. "Employment Tenure and Earnings Profiles in Japan and the United States," American Economic Review, American Economic Association, vol. 75(4), pages 721-35, September.
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