Worker-Firm Dynamics with Seniority Bargaining< /strong> (joint with Miguel Portela and Coen Teulings)
Abstract:
In this paper we provide theoretical and empirical mic
rofoundations for worker seniority (a worker’s tenure relative to the tenur
e of all her co-workers at the firm) as natural bargaining device in large
firms with stochastic product demand and irreversible firm-specific investm
ents required for each newly hired worker. The firm and its workers simulta
neously bargain for layoff order and wage schedule, whereupon inframarginal
senior workers get wage premia and layoff insurance. Buhai et al (2014, EC
TA) have already shown empirically that wages increase and job exit hazard
decreases with seniority, on exhaustive linked-employer-employee-data from
Denmark and Portugal. Using the same data and econometric methodology adapt
ed from Buhai and Teulings (2014, JBES) and Buhai et al (2014, ECTA), here
we prove that the seniority profile in wages is a proxy for the return to t
he extent of necessary worker-firm irreversible specific investments.