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.
Returns to Tenure or Seniority?
Version of Record online: 1 APR 2014
© 2014 The Econometric Society
Volume 82, Issue 2, pages 705–730, March 2014
How to Cite
Buhai, I. S., Portela, M. A., Teulings, C. N. and van Vuuren, A. (2014), Returns to Tenure or Seniority?. Econometrica, 82: 705–730. doi: 10.3982/ECTA8688
- Issue online: 1 APR 2014
- Version of Record online: 1 APR 2014
- Manuscript received July, 2009; final revision received September, 2013.
- Wage dynamics;
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.