Why Pay Seniority Wages?

Thomas Zwick

No 09-005, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper characterises establishments that pay higher seniority wages than their competitors. It tests whether seniority wages are paid on the basis of agency, human capital or efficiency wage considerations. A representative linked employeremployee panel and an innovative two-step estimation strategy are used to first calculate individual seniority wages taking into account that match quality biases tenure effects on wages. Then individual seniority wages are aggregated to the establishment level. Finally, the seniority wage indicator is explained by establishment characteristics. This contribution shows that large, profitable and establishments with a highly qualified workforce pay high seniority wages. Also collective bargaining coverage and works councils have a positive impact and the share of foreigners, training intensity and initial wage levels have a negative correlation with seniority wages. The results support an agency based motivation for seniority wages.

Keywords: Seniority Wages; Establishment Characteristics; Linked Employer-Employee Data (search for similar items in EconPapers)
JEL-codes: J14 J21 J31 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-bec, nep-hrm and nep-lab
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:7531

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