Book Description

This paper studies the returns to seniority, the returns to experience, and the effects of seniority and experience at the time of a quit or layoff on changes in the job match specific component of wages. We show that these returns are not identified in widely used regression models that relate the wage changes of stayers, quits, and layoffs to tenure and experience. We deal with the identification problem by using Geweke's (1986) Bayes procedure to combine the sample information with prior information about inequalities that the parameters must satisfy. We derive two of the inequalities from a simple model of wages and mobility, which we use to argue that the relationship between the change in the job match component and tenure at the time of a quit (layoff) will be positive (negative). We use two other inequalities that state that there is at least a small return to 30 years of experience and that persons who are laid off with substantial seniority suffer a fall in the job match specific component of wages. We find that the return to tenure is probably above Altonji and Shakotko's (1987) estimate for an earlier sample period but well below OLS estimates. We also find that there is a large return to general labor market experience that is independent of job shopping.