Returns to Tenure or Seniority?

Ioan Sebastian Buhai, Miguel Portela (), C. N. Teulings () and Aico van Vuuren

No 08-1, Working Papers from University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: This study documents two empirical regularities, using data for Denmark and Portugal. First, workers who are hired last, are the first to leave the firm (Last In, First Out; LIFO). Second, workers' wages rise with seniority (= a worker's tenure relative to the tenure of her colleagues). We seek to explain these regularities by developing a dynamic model of the firm with stochastic product demand and hiring cost (= irreversible specific investments). There is wage bargaining between a worker and its firm. Separations (quits or layoffs) obey the LIFO rule and bargaining is efficient (a zero surplus at the moment of separation). The LIFO rule provides a stronger bargaining position for senior workers, leading to a return to seniority in wages. Efficiency in hiring requires the workers’bargaining power to be in line with their share in the cost of specific investment. Then, the LIFO rule is a way to protect their property right on the specific investment. We consider the e¤ects of Employment Protection Legislation and risk aversion.

Keywords: irreversible investment; efficient bargaining; seniority; LIFO (search for similar items in EconPapers)
JEL-codes: J31 J41 J63 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2008-01-18
New Economics Papers: this item is included in nep-bec and nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Returns to Tenure or Seniority? (2014)
Working Paper: Returns to Tenure or Seniority (2013)
Working Paper: Returns to Tenure or Seniority? (2008)
Working Paper: Returns to Tenure or Seniority? (2008)
Working Paper: Returns to Tenure or Seniority? (2008)
Working Paper: Returns to Tenure or Seniority? (2008)
Working Paper: Returns to Tenure or Seniority? (2008)
Working Paper: Returns to Tenure or Seniority? (2008)
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