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Do Wages Rise with Job Seniority? The Swiss Case

Author

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  • Cornelia Luchsinger

    (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Jörg Wild

    (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Rafael Lalive
Abstract
Whether or not seniority has a substantial effect on wages has been the subject of much controversy in the past decade, mainly in the U.S. Several economists have noted that unobserved heterogeneity across individuals and across job matches may produce inconsistent OLS-estimates of the effect of tenure on wages and turnover. Hence, labor economists have put forward two empirical strategies to deal with unobserved heterogeneity: Altonji and Shakotko (1987) use an instrumental variable for tenure, which is uncorrelated with the individual and job-specific component of the error term, but highly correlated with job tenure, whereas Topel’s (1991) basic idea is that within-job wage growth combines the returns to general and job-specific experience. These two empirical strategies revealed different returns to seniority and experience for the U.S. labor market. Our goal is, on one hand, to use the different methodologies for the Swiss labor market and, on the other hand, to evaluate the sources of these differences. Thus, we replicate these methods with Swiss data (Swiss Labor Force Survey, SLFS). In a first step, we estimate returns to tenure and experience with the standard regression method, OLS. Subsequently, we apply the Topel and the Altonji/Shakotko estimator, and use different specifications for each. We find that (i) Topel’s approach delivers similar returns to tenure to OLS, i.e. about 8% within ten years of job seniority, while the Altonji/Shakotko method delivers substantially lower returns (4%). (ii) Returns to tenure are minor in Switzerland compared to the U.S.

Suggested Citation

  • Cornelia Luchsinger & Jörg Wild & Rafael Lalive, 2001. "Do Wages Rise with Job Seniority? The Swiss Case," CEPE Working paper series 01-07, CEPE Center for Energy Policy and Economics, ETH Zurich.
    • Handle: RePEc:cee:wpcepe:01-07
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    References listed on IDEAS

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    1. Kevin M. Murphy & Finis Welch, 1992. "The Structure of Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 285-326.
    2. Christian Dustmann & Costas Meghir, 2005. "Wages, Experience and Seniority," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(1), pages 77-108.
    3. Manning, Alan, 1998. "Mighty good thing: the returns to tenure," LSE Research Online Documents on Economics 20291, London School of Economics and Political Science, LSE Library.
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    6. Joseph G. Altonji & Nicolas Williams, 2005. "Do Wages Rise with Job Seniority? A Reassessment," ILR Review, Cornell University, ILR School, vol. 58(3), pages 370-397, April.
    7. Orley Ashenfelter & Cecilia Rouse, 1998. "Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 253-284.
    8. Williams, Nicolas, 1991. "Reexamining the Wage, Tenure and Experience Relationship," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 512-517, August.
    9. Joshua D. Angrist & Alan B. Keueger, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 979-1014.
    10. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-176, February.
    11. Abraham, Katharine G & Farber, Henry S, 1987. "Job Duration, Seniority, and Earnings," American Economic Review, American Economic Association, vol. 77(3), pages 278-297, June.
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    Cited by:

    1. Orlowski, Robert & Riphahn, Regina T., 2008. "The East German Wage Structure after Transition," IZA Discussion Papers 3861, Institute of Labor Economics (IZA).
    2. Marco Semadeni, 2003. "Energy storage as an essential part of sustainable energy systems," CEPE Working paper series 03-24, CEPE Center for Energy Policy and Economics, ETH Zurich.
    3. Orlowski, Robert & Riphahn, Regina T., 2008. "Seniority in Germany: New evidence on returns to tenure for male full-time workers," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(2/3), pages 139-155.
    4. Marco Semadeni, 2002. "Long-Term Energy Scenarios: Information on Aspects of Sustainable Energy Supply as a Prelude to Participatory Sessions," CEPE Working paper series 02-17, CEPE Center for Energy Policy and Economics, ETH Zurich.
    5. Florian Zainhofer, 2007. "Life Cycle Portfolio Choice: A Swiss Perspective," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(II), pages 187-238, June.
    6. Orlowski, Robert & Riphahn, Regina T., 2008. "Seniority in Germany: New evidence on returns to tenure for male full-time workers," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(2/3), pages 139-155.
    7. Daniel Spreng & Marco Semadeni, 2001. "Energie, Umwelt und die 2000 Watt Gesellschaft," CEPE Working paper series 01-11, CEPE Center for Energy Policy and Economics, ETH Zurich.
    8. Orlowski, Robert & Riphahn, Regina T., 2008. "Seniority in Germany: New evidence on returns to tenure for male full-time workers," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(2/3), pages 139-155.
    9. Robert Orlowski & Regina T. Riphahn, 2009. "The East German wage structure after transition1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(4), pages 629-659, October.
    10. Silvia Banfi & Massimo Filippini & Andrea Horehájová, 2007. "Hedonic Price Functions for Zurich and Lugano with Special Focus on Electrosmog," CEPE Working paper series 07-57, CEPE Center for Energy Policy and Economics, ETH Zurich.
    11. Thomas Zwick, 2012. "Consequences of Seniority Wages on the Employment Structure," ILR Review, Cornell University, ILR School, vol. 65(1), pages 108-125, January.
    12. Eberhard Jochem, 2005. "An Agenda for Energy and Material Efficiency Policy – An Element of Technology Policy for a More Sustainable Use of Natural Resources," CEPE Working paper series 05-40, CEPE Center for Energy Policy and Economics, ETH Zurich.

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    More about this item

    Keywords

    human capital; returns to experience; returns to tenure;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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