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Do Wages Rise With Job Seniority?

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  • Joseph G. Altonji
  • Robert A. Shakotko

Abstract

The extent to which wages rise with the accumulation of seniority(tenure) in a firm after one controls for total labor market experience is a fundamental question about the structure of earnings. A variety of studies have found a large, positive partial effect of tenure on wages. This paper re-examines the evidence using a simple instrumental variables scheme to deal with well known estimation biases which arise from the fact that tenure is likely to be related to unobserved individual and job characteristics affecting the wage. We use the variation of tenure over a given job match as the principal instrumental variable for tenure. The variation intenure over the job, in contrast to variation in tenure across individuals and jobs, is uncorrelated by construction with the fixed individual specific and job match specific components of the error term of the wage equation. Our main findingis that the partial effect of tenure on wages is small, and that general labor market experience and job shopping in the labor market account for most wage growth over a career. The strong cross section relationship between tenure and wages is due primarily to heterogeneity bias.

Suggested Citation

  • Joseph G. Altonji & Robert A. Shakotko, 1985. "Do Wages Rise With Job Seniority?," NBER Working Papers 1616, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1616
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    1. Ann P. Bartel & George J. Borjas, 1981. "Wage Growth and Job Turnover: An Empirical Analysis," NBER Chapters,in: Studies in Labor Markets, pages 65-90 National Bureau of Economic Research, Inc.
    2. Wu, De-Min, 1973. "Alternative Tests of Independence Between Stochastic Regressors and Disturbances," Econometrica, Econometric Society, vol. 41(4), pages 733-750, July.
    3. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 1-9.
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    5. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
    6. J. Luis Guasch & Andrew Weiss, 1982. "An Equilibrium Analysis of Wage—Productivity Gaps," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 485-497.
    7. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-482, June.
    8. repec:fth:prinin:169 is not listed on IDEAS
    9. James N. Brown, 1983. "Are Those Paid More Really No More Productive? Measuring the Relative Importance of Tenure Versus On-The-Job Training in Explaining Wage Growth," Working Papers 549, Princeton University, Department of Economics, Industrial Relations Section..
    10. James N. Brown, 1983. "Are Those Paid More Really No More Productive? Measuring the Relative Importance of Tenure Versus On-The-Job Training in Explaining Wage Growth," Working Papers 549, Princeton University, Department of Economics, Industrial Relations Section..
    11. Ann P. Bartel, 1980. "Wages, Nonwage Job Characteristics, and Labor Mobility," NBER Working Papers 0552, National Bureau of Economic Research, Inc.
    12. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
    13. Maddala, G S, 1971. "The Use of Variance Components Models in Pooling Cross Section and Time Series Data," Econometrica, Econometric Society, vol. 39(2), pages 341-358, March.
    14. Rosen, Sherwin, 1985. "Implicit Contracts: A Survey," Journal of Economic Literature, American Economic Association, vol. 23(3), pages 1144-1175, September.
    15. Olivia S. Mitchell, 1982. "Fringe Benefits and Labor Mobility," Journal of Human Resources, University of Wisconsin Press, vol. 17(2), pages 286-298.
    16. Pencavel, John H, 1972. "Wages, Specific Training, and Labor Turnover in US Manufacturing Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 53-64, February.
    17. Sherwin Rosen, 1972. "Learning and Experience in the Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 7(3), pages 326-342.
    18. Duncan, Greg J & Hoffman, Saul, 1979. "On-the-Job Training and Earnings Differences by Race and Sex," The Review of Economics and Statistics, MIT Press, vol. 61(4), pages 594-603, November.
    19. James J. Heckman, 1981. "Heterogeneity and State Dependence," NBER Chapters,in: Studies in Labor Markets, pages 91-140 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 1-25.
    2. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
    3. 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.
    4. Robert Topel & Laurence Weiss, 1985. "Sectoral Uncertainty and Unemployment," UCLA Economics Working Papers 384, UCLA Department of Economics.
    5. Ann Huff Stevens, 1995. "Long-Term Effects of Job Displacement: Evidence from the Panel Study of Income Dynamics," NBER Working Papers 5343, National Bureau of Economic Research, Inc.
    6. Jacob Mincer, 1988. "Job Training, Wage Growth, and Labor Turnover," NBER Working Papers 2690, National Bureau of Economic Research, Inc.
    7. Laurence J. Kotlikoff, 1988. "Estimating The Age-Productivity Profile Using Lifetime Earnings," NBER Working Papers 2788, National Bureau of Economic Research, Inc.

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