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How Worker Productivity and Wages Grow with Tenure and Experience: The Firm Perspective

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  • Leth-Petersen, Søren
  • Lee, Minjoon
  • Caplin, Andrew
  • Shapiro, Matthew D.
  • Sæverud, Johan

Abstract

How worker productivity evolves with tenure and experience is central to economics, shaping, for example, life-cycle earnings and the losses from involuntary job separation. Yet, worker-level productivity is hard to identify from observational data. This paper introduces direct measurement of worker productivity in a firm survey designed to separate the role of on-the-job tenure from total experience in determining productivity growth. Several findings emerge concerning the initial period on the job. (1) On-the-job productivity growth exceeds wage growth, consistent with wages not being allocative period-by-period. (2) Previous experience is a substitute, but a far less than perfect one, for on-the-job tenure. (3) There is substantial heterogeneity across jobs in the extent to which previous experience substitutes for tenure. The survey makes use of administrative data to construct a representative sample of firms, check for selective non-response, validate survey measures with administrative measures, and calibrate parameters not measured in the survey.

Suggested Citation

  • Leth-Petersen, Søren & Lee, Minjoon & Caplin, Andrew & Shapiro, Matthew D. & Sæverud, Johan, 2022. "How Worker Productivity and Wages Grow with Tenure and Experience: The Firm Perspective," CEPR Discussion Papers 17545, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17545
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    2. Spencer Bastani & Thomas Giebe & Oliver Gürtler, 2023. "Overconfidence and Gender Equality in the Labor Market," ECONtribute Discussion Papers Series 220, University of Bonn and University of Cologne, Germany.
    3. Aghion, Philippe & Bergeaud, Antonin & Blundell, Richard & Griffith, Rachel, 2023. "Social Skills and the Individual Wage Growth of Less Educated Workers," CEPR Discussion Papers 18456, C.E.P.R. Discussion Papers.
    4. Bastani, Spencer & Giebe, Thomas & Guertler, Oliver, 2024. "Overconfidence and gender gaps in career outcomes: insights from a promotion signaling model," Working Paper Series 2024:21, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    5. Freund, L. B., 2022. "Superstar Teams," Cambridge Working Papers in Economics 2276, Faculty of Economics, University of Cambridge.
    6. Justine Herve & Helene Purcell & Subha Mani, 2023. "Conscientiousness Matters: How does Personality affect Labor Market Outcomes?," Fordham Economics Discussion Paper Series dp2023-05er:dp2023-05, Fordham University, Department of Economics.

    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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