Experience and Productivity in Wage Formation in Finnish Industries

Hannu Piekkola, Satu Hohti and Pekka Ilmakunnas

No 154, Working Papers from Työn ja talouden tutkimus LABORE, Labour Institute for Economic Research LABORE

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.

Keywords: wages; compensation policy; productivity; industry differentials (search for similar items in EconPapers)
JEL-codes: C22 J21 J31 J50 (search for similar items in EconPapers)
Pages: 28 pages
Date: 1999-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:pst:wpaper:154

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