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Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority

Robert H. Topel

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

March 1990

NBER Working Paper No. w3294

The idea that wages rise relative to alternatives as job seniority accumulates is the foundation of the theory of specific human capital, as well as other widely accepted theories of compensation. The fact that persons with longer job tenures typically earn higher wages tends to support these views, yet this evidence ignores the decisions that have brought individuals to the combination of wages, job tenure, and experience that are observed in survey data. Allowing for sources of bias generated by these decisions, this paper uses longitudinal data to estimate a lower bound on the avenge return to job seniority among adult men. I find that 10 years of current job seniority raises the wage of the typical male worker in the U.S. by over 25 percent. This is an estimate of what the typical worker would lose if his job were to end exogenously. Overall, the evidence implies that accumulation of specific capital is an important ingredient of the typical employment relationship, and of life-cycle earnings and productivity as well. Continuation of these relationships has substantial specific value for workers.

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Date posted: July 4, 2004  

Suggested Citation

Topel, Robert H., Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority (March 1990). NBER Working Paper No. w3294. Available at SSRN: http://ssrn.com/abstract=238153

Contact Information

Robert H. Topel (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7524 (Phone)
773-702-2699 (Fax)

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National Bureau of Economic Research (NBER)
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Cambridge, MA 02138
United States
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