Returns to Type or Tenure?

CentER Discussion Paper No. 2011-001

24 Pages Posted: 1 Feb 2011

See all articles by Roland Amann

Roland Amann

University of Konstanz

Tobias J. Klein

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER); IZA Institute of Labor Economics; Netspar; Tilburg Law and Economics Center (TILEC)

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Date Written: January 1, 2011

Abstract

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.

Keywords: Wage growth, returns to tenure, selection on unobservables, control function approach, nonseparable model

JEL Classification: J31

Suggested Citation

Amann, Roland and Klein, Tobias J., Returns to Type or Tenure? (January 1, 2011). CentER Discussion Paper No. 2011-001, Available at SSRN: https://ssrn.com/abstract=1752225 or http://dx.doi.org/10.2139/ssrn.1752225

Roland Amann

University of Konstanz ( email )

Fach D-144
Universitätsstraße 10
Konstanz, D-78457
Germany

Tobias J. Klein (Contact Author)

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands

HOME PAGE: http://center.uvt.nl/staff/klein/index.html

Tilburg University - Center for Economic Research (CentER)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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