Performance, Seniority and Wages: Formal Salary Systems and Individual Earnings Profiles

Thomas Dohmen

No 935, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper replicates studies by Medoff and Abraham (1980, 1981) and Flabbi and Ichino (2001) using personnel data from the Dutch national aircraft manufacturer Fokker. It shows how a formal salary system, as is widely used by large firms, brings about that seniority-wage profiles are largely independent of controls for reported performance in cross-sectional wage regressions even though supervisors' evaluations shape life-cycle earnings profiles. Performance ratings determine how fast a worker climbs the firm's career and wage ladder. The paper also reveals that real wage growth depends on the employer's prosperity. Furthermore it demonstrates that formal salary systems cause serial correlation in wage growth and 'Green Card' effects.

Keywords: personnel economics; internal labor markets; returns to seniority; formal salary systems (search for similar items in EconPapers)
JEL-codes: J30 J31 M52 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2003-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: Labour Economics, 2004, 11 (6), 741-763

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Journal Article: Performance, seniority, and wages: formal salary systems and individual earnings profiles (2004)
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