Do Wages Rise with Job Seniority?

70 Pages Posted: 23 Jan 2002 Last revised: 4 Dec 2022

See all articles by Joseph G. Altonji

Joseph G. Altonji

Yale University - Economic Growth Center; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Robert A. Shakotko

Standard & Poor's - Index Services; National Bureau of Economic Research (NBER)

Date Written: May 1985

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.

Suggested Citation

Altonji, Joseph G. and Shakotko, Robert A., Do Wages Rise with Job Seniority? (May 1985). NBER Working Paper No. w1616, Available at SSRN: https://ssrn.com/abstract=227194

Joseph G. Altonji (Contact Author)

Yale University - Economic Growth Center ( email )

Box 208269
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United States

National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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Robert A. Shakotko

Standard & Poor's - Index Services

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New York, NY 10041
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States