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The Cambridge-INET Institute

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Buhai, I.S., Portela, M.A., Teulings, C.N., van Vuuren, A.

Returns to tenure or seniority?


Vol. 82(2) pp. 705-730 (2014)

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.

Keywords: Wage dynamics, tenure, seniority, last-in-first-out

JEL Codes: J31, J41, J63

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Theme: 1