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Experience and Productivity in Wage Formation in Finnish Industries

Author

Listed:
  • Hannu Piekkola
  • Satu Hohti
  • Pekka Ilmakunnas

Abstract

The aim of this paper is to discriminate between alternative compensation policies in Finnish industries using linked employer-employee data covering the period 1987–1992. Experience-related payments are shown to vary in industries and in education levels. Experience payments from initial tenure, and also from general experience, are increasing with education level. Earnings equations should also have a firm-level compensation term with a firm-specific intercept and seniority effect. There is a clear association of firm-level compensation to education, in contrast to weak correlation to other human capital components such as general experience. We also examine the efficiency of the compensation policies on the basis of their impact on labor and total factor productivity. We find seniority compensations efficient only from longer tenure. High productive industries are instead characterized by high general experience payments at the beginning of working career.

Suggested Citation

  • Hannu Piekkola & Satu Hohti & Pekka Ilmakunnas, 1999. "Experience and Productivity in Wage Formation in Finnish Industries," Working Papers 154, Työn ja talouden tutkimus LABORE, Labour Institute for Economic Research LABORE.
    • Handle: RePEc:pst:wpaper:154
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    References listed on IDEAS

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    More about this item

    Keywords

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    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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