Returns to Type or Tenure?
University of Konstanz
Tobias J. Klein
Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER); Institute for the Study of Labor (IZA); Netspar; Tilburg Law and Economics Center (TILEC)
January 1, 2011
CentER Discussion Paper No. 2011-001
A regression of wages on firm tenure is likely to yield biased estimates of the returns to tenure because tenure and wages are confounded by unobserved attributes of the job and the unobserved quality of the match between the firm and the employee. Previously, the within-job variation in tenure has been used as an instrument to estimate the average returns to tenure. In this paper, we propose to use instead an easy-to-implement control function estimator for the returns to tenure and their dependence on unobserved heterogeneity. The obtained results for Germany indicate that there is a substantial amount of unobserved heterogeneity in the returns to tenure and that good job matches are characterized by higher returns to tenure in the first five years and lower returns thereafter.
Number of Pages in PDF File: 24
Keywords: Wage growth, returns to tenure, selection on unobservables, control function approach, nonseparable model
JEL Classification: J31working papers series
Date posted: February 1, 2011
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