Interfirm Mobility, Wages and the Returns to Seniority and Experience in the United States

TLDR

The study revisits the returns to seniority in the United States, extending prior work by incorporating workers’ full career paths into the wage equation. The authors use a three‑equation system that models participation, inter‑firm mobility, and wages, estimating it simultaneously with Panel Study of Income Dynamics data. They find that across all three education groups, seniority yields higher wage returns than reported in earlier literature.

Abstract

In this paper, we expand on the seminal work of Altonji and Shakotko (1987) and Topel (1991) and reinvestigate the returns to seniority in the United States. We begin with the same wage equation as in previous studies. We extend the model of Hyslop (1999) and explicitly model the participation/employment and inter-firm mobility decisions, which, in turn, define the individual's experience and seniority. We introduce into the wage equation a summary of the workers' entire career path. The three-equation system is estimated simultaneously using data from the Panel Study of Income Dynamics (PSID). We find that for each of the three education groups studied the returns to seniority are larger than those previously found in the literature.