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Performance, Seniority and Wages: Formal Salary Systems and Individual Earnings Profiles

  • Dohmen, Thomas

    ()

    (University of Bonn)

This paper replicates studies by Medoff and Abraham (1980, 1981) and Flabbi and Ichino (2001) using personnel data from the Dutch national aircraft manufacturer Fokker. It shows how a formal salary system, as is widely used by large firms, brings about that seniority-wage profiles are largely independent of controls for reported performance in cross-sectional wage regressions even though supervisors' evaluations shape life-cycle earnings profiles. Performance ratings determine how fast a worker climbs the firm's career and wage ladder. The paper also reveals that real wage growth depends on the employer's prosperity. Furthermore it demonstrates that formal salary systems cause serial correlation in wage growth and 'Green Card' effects.

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File URL: http://ftp.iza.org/dp935.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 935.

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Length: 35 pages
Date of creation: Nov 2003
Date of revision:
Publication status: published in: Labour Economics, 2004, 11 (6), 741-763
Handle: RePEc:iza:izadps:dp935
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