Mighty Good Thing: The Returns to Tenure
The human capital earnings function is part of the toolbox of labour economists. Returns to labour market experience are interpreted as returns to general human capital, and returns to job tenure as returns to job-specific human capital. There is, however, an awareness that there are other models capable of explaining these correlations, notably a search or 'job-shopping' model and a number of papers have attempted to distinguish the two hypotheses using mostly data on wage growth for job-stayers and movers. The results have been mixed. This paper takes a different approach to the same issue. It shows how a simple search model can be used to predict the nature of the relationship between wages, experience and tenure if one has data on labour market transition rates. This is what is done in this paper using data from the UK Labour Force Survey. The conclusions are that while part of the returns to experience can be explained by the search model, there is a substantial part that must be interpreted as a 'true' return to experience. In contrast, we show how the search model over-predicts the returns to tenure and the data seem broadly consistent with a model in which the 'true' returns to tenure are close to zero.
|Date of creation:||Mar 1998|
|Date of revision:|
|Contact details of provider:|| Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP|
References listed on IDEAS
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- Jovanovic, Boyan, 1979. "Firm-specific Capital and Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1246-60, December.
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"Job Matching and the Theory of Turnover,"
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"Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority,"
NBER Working Papers
3294, National Bureau of Economic Research, Inc.
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"Do Wages Rise with Job Seniority? A Reassessment,"
Cornell University, ILR School, vol. 58(3), pages 370-397, April.
- repec:oup:restud:v:54:y:1987:i:3:p:437-59 is not listed on IDEAS
- Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
- Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March.
- Mortensen, Dale T, 1988. "Wages, Separations, and Job Tenure: On-the-Job Specific Training or Matching?," Journal of Labor Economics, University of Chicago Press, vol. 6(4), pages 445-71, October.
- Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-22, February.
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