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The Effects of Labor Market Experience, Job Seniority, and Job Mobility on Wage Growth

  • Joseph G. Altonji
  • Nicolas Williams

This paper studies the returns to seniority, the returns to experience, and the effects of seniority and experience at the time of a quit or layoff on changes in the job match specific component of wages. We show that these returns are not identified in widely used regression models that relate the wage changes of stayers, quits, and layoffs to tenure and experience. We deal with the identification of problems in two ways. First, we obtain theoretical bounds on key unidentified parameters using a simple model of wages and mobility. Second, we check the implications of assumptions about the linear tenure slope for the estimates of the returns to tenure, experience, and the effect of tenure on job match gains. We have three main empirical findings. First, there is a large return to general labor market experience that is independent of job shopping. Second, the return to tenure is probably above the Altonji and Shakotko's (1987) estimate but far below OLS estimates. Third, quits results in substantial job match gains for inexperienced workers. Layoffs are associated with the substantial job match losses for workers who have been on the job for over a year.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4133.

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Date of creation: Aug 1992
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Publication status: published as Altonji, Joseph G. and Nicolas Williams. "The Effects of Labor Market Experience, Job Seniority and Mobility on Wage Growth." Research in Labor Economics 17 (1998): 233-276.
Handle: RePEc:nbr:nberwo:4133
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  1. Daniel S. Hamermesh, 1987. "The Costs of Worker Displacement," The Quarterly Journal of Economics, Oxford University Press, vol. 102(1), pages 51-75.
  2. Gibbons, Robert & Katz, Lawrence F, 1991. "Layoffs and Lemons," Journal of Labor Economics, University of Chicago Press, vol. 9(4), pages 351-80, October.
  3. Lynch, Lisa M, 1992. "Private-Sector Training and the Earnings of Young Workers," American Economic Review, American Economic Association, vol. 82(1), pages 299-312, March.
  4. Katharine G. Abraham & Henry S. Farber, 1986. "Job Duration, Seniority and Earnings," Working papers 407, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Daniel S. Hamermesh, 1984. "The Costs of Worker Displacement," NBER Working Papers 1495, National Bureau of Economic Research, Inc.
  6. Robert E. Hall & Edward P. Lazear, 1982. "The Excess Sensitivity of Layoffs and Quits to Demand," NBER Working Papers 0864, National Bureau of Economic Research, Inc.
  7. Marshall, Robert C & Zarkin, Gary A, 1987. "The Effect of Job Tenure on Wage Offers," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 301-24, July.
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  9. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1989. "Job Matching and On-the-Job Training," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 1-19, January.
  10. Kletzer, Lori Gladstein, 1989. "Returns to Seniority after Permanent Job Loss," American Economic Review, American Economic Association, vol. 79(3), pages 536-43, June.
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  14. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  15. Addison, John T & Portugal, Pedro, 1989. "Job Displacement, Relative Wage Changes, and Duration of Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 281-302, July.
  16. Murphy, Kevin M & Welch, Finis, 1990. "Empirical Age-Earnings Profiles," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 202-29, April.
  17. Flinn, Christopher J, 1986. "Wages and Job Mobility of Young Workers," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S88-S110, June.
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  19. Clive Bull & Boyan Jovanovic, 1988. "Mismatch Versus Derived-Demand Shift as Causes of Labour Mobility," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 169-175.
  20. Masanori Hashimoto & Ben T. Yu, 1980. "Specific Capital, Employmemt Contracts, and Wage Rigidity," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 536-549, Autumn.
  21. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-82, June.
  22. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1992. "Earnings losses of displaced workers," Working Paper Series, Macroeconomic Issues 92-28, Federal Reserve Bank of Chicago.
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  24. Topel, Robert, 1990. "Specific capital and unemployment: Measuring the costs and consequences of job loss," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 33(1), pages 181-214, January.
  25. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  26. Joseph G. Altonji & James R. Spletzer, 1991. "Worker characteristics, job characteristics, and the receipt of on-the-job training," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 45(1), pages 58-79, October.
  27. Bishop, John H, 1990. "Job Performance, Turnover, and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 8(3), pages 363-86, July.
  28. Brown, James N & Light, Audrey, 1992. "Interpreting Panel Data on Job Tenure," Journal of Labor Economics, University of Chicago Press, vol. 10(3), pages 219-57, July.
  29. Williams, Nicolas, 1991. "Reexamining the Wage, Tenure and Experience Relationship," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 512-17, August.
  30. Joseph G. Altonji & James R. Spletzer, 1991. "Worker Characteristics, Job Characteristics, and the Receipt of On-the-Job Training," ILR Review, Cornell University, ILR School, vol. 45(1), pages 58-79, October.
  31. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 315-333.
  32. Mortensen, Dale T, 1988. "Wages, Separations, and Job Tenure: On-the-Job Specific Training or Matching?," Journal of Labor Economics, University of Chicago Press, vol. 6(4), pages 445-71, October.
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