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Firm Heterogeneity and Worker Self-Selection Bias Estimated Returns to Seniority

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  • Margolis, D..N.

Abstract

I develop a model under which workers with different marginal productivities self-select into firms based on the firm's seniority reward policy. I show how this may bias upwards the estimates of returns to seniority in cross-sectional and even some longitudinal studies, when differences in workforce composition are ignored. I develop a new estimator of true returns to seniority and empirically test the implications of the model. I show how several previous estimation strategies over-estimate returns to seniority, particularly in firms that offer zero or negative returns to job seniority, using a large longitudinal sample of French firms and workers. Dans ce papier je décris un modèle d'embauches où les individus avec des productivités marginales hétérogènes se trouvent par autosélection, dans les entreprises avec des politiques de rémunération d'ancienneté différentes. Je montre comment ceci peut induire un biais positif dans les estimateurs de rendement de l'ancienneté basés sur les données en coupe transversales et même certains estimateurs basés sur les données longitudinales. Je décris un nouvel estimateur du vrai rendement de l'ancienneté, que j'utilise pour tester les implications du modèle. Je montre comment certaines autres approches surestiment les rendements de l'ancienneté, surtout dans les firmes qui rémunèrent très peu l'ancienneté, en utilisant une grande base de données longitudinales des employeurs et employés français.
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Suggested Citation

  • Margolis, D..N., 1995. "Firm Heterogeneity and Worker Self-Selection Bias Estimated Returns to Seniority," Cahiers de recherche 9502, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  • Handle: RePEc:mtl:montec:9502
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    References listed on IDEAS

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    1. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    2. Boyer, Marcel & Laffont, Jean-Jacques & Mahenc, Philippe & Moreaux, Michel, 1995. "Sequential Location Equilibria under Incomplete Information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(2), pages 323-350, July.
    3. Joseph G. Altonji & Robert A. Shakotko, 1987. "Do Wages Rise with Job Seniority?," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 437-459.
    4. Margolis, D..N., 1995. "Firm Heterogeneity and Worker Self-Selection Bias Estimated Returns to Seniority," Cahiers de recherche 9502, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    5. Vogelsang, Timothy J & Perron, Pierre, 1998. "Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 1073-1100, November.
    6. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 629-649.
    7. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    8. Andrew Weiss & Ruqu Wang, 1990. "A Sorting Model of Labor Contracts: Implications for Layoffs and Wage-Tenure Profiles," NBER Working Papers 3448, National Bureau of Economic Research, Inc.
    9. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-176, February.
    10. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-297, June.
    11. Joanne Salop & Steven Salop, 1976. "Self-Selection and Turnover in the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 619-627.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. VILHUBERT, Lars, 1999. "Sector-Specific on-the-Job Training: Evidence from U.S. Data," Cahiers de recherche 9906, Universite de Montreal, Departement de sciences economiques.
    2. Margolis, D..N., 1995. "Firm Heterogeneity and Worker Self-Selection Bias Estimated Returns to Seniority," Cahiers de recherche 9502, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    3. Amigues, Jean-Pierre & Favard, Pascal & Gaudet, Gerard & Moreaux, Michel, 1998. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute Is Limited," Journal of Economic Theory, Elsevier, vol. 80(1), pages 153-170, May.
    4. Stefan Bender & Till von Wachter, 2006. "In the Right Place at the Wrong Time: The Role of Firms and Luck in Young Workers' Careers," American Economic Review, American Economic Association, vol. 96(5), pages 1679-1705, December.
    5. Lars Vilhuber, 1997. "Sector-Specific On-the-Job Training: Evidence from U.S. Data," CIRANO Working Papers 97s-42, CIRANO.
    6. Yves Sprumont, 1998. "On the Game-Theoretic Structure of Public-Good Economies," International Journal of Game Theory, Springer;Game Theory Society, vol. 26(4), pages 455-472.
    7. Till von Wachter & Stefan Bender, 2008. "Do Initial Conditions Persist between Firms? An Analysis of Firm-Entry Cohort Effects and Job Losers Using Matched Employer-Employee Data," NBER Chapters,in: The Analysis of Firms and Employees: Quantitative and Qualitative Approaches, pages 135-162 National Bureau of Economic Research, Inc.
    8. Touhami, A. & Martens, A., 1996. "Macroemesures in Computable General Equilibrium Models: a Probabilistic Treatment with an Application to Morocco," Cahiers de recherche 9621, Universite de Montreal, Departement de sciences economiques.
    9. repec:eee:labchp:v:3:y:1999:i:pb:p:2439-2483 is not listed on IDEAS
    10. Leonard, Jonathan S., 1999. "Bringing the firm back in," Labour Economics, Elsevier, vol. 6(1), pages 43-51, March.

    More about this item

    Keywords

    WORKERS; ENTERPRISES;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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