Do Wages Rise with Job Seniority?

Joseph Altonji and Robert Shakotko
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Robert Shakotko: Hunter College -- CUNY and NBER

No 567, Working Papers from Princeton University, Department of Economics, Industrial Relations Section.

Abstract: The extent to which wages rise with the accumulation of seniority(tenure) in a firm after one controls for total labor market experience is a fundamental question about the structure of earnings. A variety of studies have found a large, positive partial effect of tenure on wages. This paper re-examines the evidence using a simple instrumental variables scheme to deal with well known estimation biases which arise from the fact that tenure is likely to be related to unobserved individual and job characteristics affecting the wage. We use the variation of tenure over a given job match as the principal instrumental variable for tenure. The variation intenure over the job, in contrast to variation in tenure across individuals and jobs, is uncorrelated by construction with the fixed individual specific and job match specific components of the error term of the wage equation. Our main findingis that the partial effect of tenure on wages is small, and that general labor market experience and job shopping in the labor market account for most wage growth over a career. The strong cross section relationship between tenure and wages is due primarily to heterogeneity bias.

Keywords: wages; job tenure; experience; heterogeneity bias (search for similar items in EconPapers)
JEL-codes: C81 (search for similar items in EconPapers)
Date: 1985-04
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Do Wages Rise with Job Seniority? (1987)
Working Paper: Do Wages Rise With Job Seniority? (1985)
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Persistent link: https://EconPapers.repec.org/RePEc:pri:indrel:187

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