Dynamic Labor Market Competition and Wage Seniority

31 Pages Posted: 23 Jun 2017 Last revised: 22 Aug 2018

See all articles by Oz Shy

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Rune Stenbacka

Hanken School of Economics

Date Written: August 21, 2018

Abstract

We design an overlapping generations model of the labor market. Experienced workers bear costs of switching employers, whereas the segment for junior workers is horizontally differentiated. The literature typically explains wage seniority premia with reference to productivity gains generated by the accumulation of worker experience or mechanisms associated with incomplete information. In contrast, this paper characterizes how the wage seniority premium depends on the relative intensities of competition in the markets for junior and senior workers. In particular, we show that a wage seniority premium may prevail even under circumstances where senior workers are less productive than junior workers.

Keywords: Wage Seniority Premium, Dynamic Wage Competition, Wage-Tenure Profiles, Job Switching, Labor Market Competition

JEL Classification: J31, L13

Suggested Citation

Shy, Oz and Stenbacka, Rune, Dynamic Labor Market Competition and Wage Seniority (August 21, 2018). Available at SSRN: https://ssrn.com/abstract=2991639 or http://dx.doi.org/10.2139/ssrn.2991639

Oz Shy (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

HOME PAGE: http://https://www.frbatlanta.org/research/economists/shy-oz.aspx

Rune Stenbacka

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland
+35 89 4313 3433 (Phone)
+35 89 4313 3382 (Fax)

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