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Returns to Tenure or Seniority

  • Sebastian Buhai
  • Miguel Portela
  • Coen Teulings
  • Aico van Vuuren

This study documents two empirical facts using matched employer-employee data for Denmark and Portugal. First, workers who are hired last, are the first to leave the firm. Second, workers’ wages rise with seniority (= a worker’s tenure relative to the tenure of her colleagues). The identification problems for the wage return to tenure are shown not to apply to the return to seniority because seniority is not a deterministic function of time. Controlling for tenure, the probability of leaving the firm decreases with seniority. The increase in expected seniority with tenure explains a large part of the negative duration dependence of the hazard. Using a variety of estimation methods, we show that a 10% increase in seniority raises your wage by 0.1-0.2%, depending on the country and the method applied. Conditional on ten years of tenure, one standard deviation of seniority raises your wage by 0.5 to 1.6 percent. Forthcoming in Econometrica.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1335.

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Date of creation: 07 Oct 2013
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Handle: RePEc:cam:camdae:1335
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