Returns to Tenure or Seniority?

Authors

  • I. Sebastian Buhai,

    1. Dept. of Economics, Stockholm University, 106 91 Stockholm, Sweden; sbuhai@gmail.com
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  • Miguel A. Portela,

    1. School of Economics and Management, University of Minho, Campus de Gualtar, 4710-057 Braga, Portugal; mangelo@eeg.uminho.pt
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  • Coen N. Teulings,

    1. Faculty of Economics, University of Cambridge, Cambridge CB3 9DD, U.K., and University of Amsterdam; cnt23@cam.ac.uk
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  • Aico van Vuuren

    1. Faculty of Economics and Business Administration, VU University Amsterdam, 1081 HV Amsterdam, Netherlands; a.p.van.vuuren@vu.nl
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    • We thank three anonymous referees, the editor, Jaap Abbring, John Abowd, Joe Altonji, Gadi Barlevy, Marianne Bertrand, Paul Bingley, Moshe Buchinsky, Bent J. Christensen, Eric French, Pieter Gautier, Larry Katz, Francis Kramarz, Espen Moen, Dale Mortensen, Kevin Murphy, Derek Neal, Robert Shimer, Robert Topel, Til von Wachter, Michael Waldman, and audiences of seminars and conferences. For access to the data, we thank the LMDG and CCP research centers at the Department of Economics and Business of Aarhus University, Statistics Denmark, and the Portuguese Ministry of Solidarity, Employment and Social Security-GEP. Buhai acknowledges financial support provided through the European Commission FP7 Marie Curie IOF, Grant PIOF-GA-2009-255597. Portela acknowledges financial support provided by the Portuguese Foundation for Science and Technology, Grant SFRH/BD/5114/2001.


Abstract

This study documents two empirical facts using matched employer–employee data for Denmark and Portugal. First, workers who are hired last, are the first to leave the firm. Second, workers' wages rise with seniority, where seniority is defined as a worker's tenure relative to the tenure of his colleagues. Controlling for tenure, the probability of a worker leaving the firm decreases with seniority. The increase in expected seniority with tenure explains a large part of the negative duration dependence of the separation hazard. Conditional on ten years of tenure, the wage differential between the 10th and the 90th percentiles of the seniority distribution is 1.1–1.4 percentage points in Denmark and 2.3–3.4 in Portugal.

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