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

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  • Dohmen, Thomas

    (University of Bonn and IZA)

Abstract

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.

Suggested Citation

  • Dohmen, Thomas, 2003. "Performance, Seniority and Wages: Formal Salary Systems and Individual Earnings Profiles," IZA Discussion Papers 935, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp935
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    More about this item

    Keywords

    personnel economics; internal labor markets; returns to seniority; formal salary systems;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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