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Do Wages Rise with Job Seniority? The Swiss Case

  • Cornelia Luchsinger

    ()

    (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Jörg Wild

    (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Rafael Lalive

Whether or not seniority has a substantial effect on wages has been the subject of much controversy in the past decade, mainly in the U.S. Several economists have noted that unobserved heterogeneity across individuals and across job matches may produce inconsistent OLS-estimates of the effect of tenure on wages and turnover. Hence, labor economists have put forward two empirical strategies to deal with unobserved heterogeneity: Altonji and Shakotko (1987) use an instrumental variable for tenure, which is uncorrelated with the individual and job-specific component of the error term, but highly correlated with job tenure, whereas Topel’s (1991) basic idea is that within-job wage growth combines the returns to general and job-specific experience. These two empirical strategies revealed different returns to seniority and experience for the U.S. labor market. Our goal is, on one hand, to use the different methodologies for the Swiss labor market and, on the other hand, to evaluate the sources of these differences. Thus, we replicate these methods with Swiss data (Swiss Labor Force Survey, SLFS). In a first step, we estimate returns to tenure and experience with the standard regression method, OLS. Subsequently, we apply the Topel and the Altonji/Shakotko estimator, and use different specifications for each. We find that (i) Topel’s approach delivers similar returns to tenure to OLS, i.e. about 8% within ten years of job seniority, while the Altonji/Shakotko method delivers substantially lower returns (4%). (ii) Returns to tenure are minor in Switzerland compared to the U.S.

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Paper provided by CEPE Center for Energy Policy and Economics, ETH Zurich in its series CEPE Working paper series with number 01-07.

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Length: 22 pages
Date of creation: Mar 2001
Date of revision:
Handle: RePEc:cee:wpcepe:01-07
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Web page: http://www.cepe.ethz.ch
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  1. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Joshua D. Angrist & Alan B. Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," NBER Working Papers 3572, National Bureau of Economic Research, Inc.
  3. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  4. Joseph G. Altonji & Nicolas Williams, 1997. "Do Wages Rise with Job Seniority? A Reassessment," NBER Working Papers 6010, National Bureau of Economic Research, Inc.
  5. Orley Ashenfelter & Cecilia Rouse, 1997. "Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins," NBER Working Papers 6106, National Bureau of Economic Research, Inc.
  6. Alan Manning, 1998. "Mighty good thing: the returns to tenure," LSE Research Online Documents on Economics 20291, London School of Economics and Political Science, LSE Library.
  7. Williams, Nicolas, 1991. "Reexamining the Wage, Tenure and Experience Relationship," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 512-17, August.
  8. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  9. Christian Dustmann & Costas Meghir, 2005. "Wages, Experience and Seniority," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 77-108.
  10. Griliches, Zvi, 1979. "Sibling Models and Data in Economics: Beginnings of a Survey," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S37-64, October.
  11. Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February.
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