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Productivity, Seniority and Wages: New Evidence from Personnel Data

Luca Flabbi and Andrea Ichino

No 1966, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Wages may be observed to increase with seniority because of firm-specific human capital accumulation or because of self-selection of better workers in longer jobs. In both these cases the upward sloping wage profile in cross-sectional regressions would reflect higher productivity of more senior workers. If this were true, the observation of an effect of seniority on wages would depend on the presence of controls for individual productivity. In this paper we replicate, using personnel data from a large Italian firm, the results of the pioneering work of Medoff and Abraham (1980 and 1981) in which supervisors' evaluations were used as productivity indicators. Since the validity of supervisors' evaluations as measures of productivity has been widely criticized, we extend the work of Medoff and Abraham using different direct measures of productivity based on recorded absenteeism and misconduct episodes. Both these indicators and supervisors' evaluation suggest that the observed effect of seniority on wages does not reflect a higher productivity of more senior workers. Theories in which wages are deferred for incentive or insurance reasons are therefore more likely to explain the observed upward sloping profile.

Keywords: Productivity; returns to seniority; Wage Determination (search for similar items in EconPapers)
JEL-codes: J30 J31 (search for similar items in EconPapers)
Date: 1998-09
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Related works:
Journal Article: Productivity, seniority and wages: new evidence from personnel data (2001) Downloads
Working Paper: Productivity, Seniority and Wages. New Evidence form Personnel Data (1998)
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