Wages, Experience and Seniority

Abstract

This paper develops and estimates a human capital model of wage growth based on learning by doing. Learning by doing rates are assumed to be heterogeneous and firms offer different career structures in terms of the rate of acquisition of firm specific human capital. The model is estimated using a unique data set drawn from German administrative records and including a complete employment and earnings history for each worker in our sample. We find evidence of increased labor market attachments for individuals with higher returns to experience. This has important implications for the estimates. The estimated returns to experience are 2.7% a year. The returns to tenure are close to zero. Crucial identifying information is provided by plant closures.

JEL Classification: J24, J31, J41