nep-hrm New Economics Papers
on Human Capital and Human Resource Management
Issue of 2006‒02‒05
25 papers chosen by
Fabio Sabatini
Universita degli Studi di Roma, La Sapienza

  1. Where Do Human Capital Externalities End Up To? By Alberto Dalmazzo; Guido De Blasio
  2. What determines productivity level in the long run? Evidence from Italians regions By Raffaello Bronzini; Paolo Piselli
  3. The Return to the Firm Investment in Human Capital By Rita Almeida; Pedro Carneiro
  4. Human capital and regional economic growth - Evidence from the dual approach By Enrique López-Bazo; Rosina Moreno
  5. Endogenous Mortality, Human Capital and Endogenous Growth By Osang, Thomas; Sarkar, Jayanta
  6. Has human capital accounted for regional economic growth in Italy? A panel analysis on the 1980-2001 period By Eliana Baici; Giorgia Casalone
  9. Self-Selection in Migration and Returns to Unobservable Skills By Benoit Dostie; Pierre Thomas Léger
  10. Educational Differences in the Migration Responses of Young Workers to Local Labor Market Conditions By Abigail Wozniak
  11. Regional Concentration of Highly Educated Couples By Signe Jauhiainen
  12. Immigrant source country educational quality and Canadian labour market outcomes By Sweetman, Arthur
  13. Family background and access to post-secondary education: what happened over the 1990s? By Finnie, Ross; Laporte, Christine; Lascelles, Eric
  15. Relative wage patterns among the highly educated in a knowledge-based economy By Picot, Garnett; Morissette, René; Ostrovsky, Yuri
  16. WAGE AND HUMAN CAPITAL IN EXPORTING FIRMS IN MOROCCO By Christophe Muller; Christophe Nordman
  17. Canadian compulsory school laws and their impact on educational attainment and future earnings By Oreopoulos, Phil
  18. Who Goes? The direct and indirect effects of family background on access to post-secondary education By Finnie, Ross; Lascelles, Eric; Sweetman, Arthur
  19. The Effects of State-Sponsored Merit Scholarships on Course Selection and Major Choice in College By Christopher Cornwell; Kyung Hee Lee; David B. Mustard
  20. Making the transition: the impact of moving from elementary to secondary school on adolescents' academic achievement and psychological adjustment By Lipps, Garth
  21. Participation in post-secondary education in Canada: Has the role of parental income and education changed over the 1990s? By Drolet, Marie
  22. IMPROVING TRAINING AND EDUCATION IN CLUSTERS - LESSONS FROM THREE PORT CLUSTERS Improving Training and Education in Clusters - Lessons from Three Port Clusters By Peter W. De Langen
  23. Are the Factors Affecting Dropout Behavior Related to Initial Enrollment Intensity for College Undergraduates? By Leslie S. Stratton; Dennis M. O’Toole; James N. Wetzel
  24. Rates of Return to Degrees across British Regions By Nigel C. O'Leary; Peter J. Sloane
  25. The Returns to Seniority in France (and Why Are They Lower than in the United States?) By Magali Beffy; Moshe Buchinsky; Denis Fougère; Thierry Kamionka; Francis Kramarz

  1. By: Alberto Dalmazzo; Guido De Blasio
    Abstract: Recent literature has aimed at evaluating human capital externalities by estimating the effect of human capital on wages at urban level. We argue that this methodology might not identify properly human capital spillovers. We consider a general equilibrium model based on Roback (1982) where both wages and rents are simultaneously determined at the local level. We show that human capital externalities cannot be identified unless the joint effect of local human capital on both wages and rents is considered. Empirically, we study the effects of local human capital on household-level rents and individual-level wages for a sample of Italian local labor markets. Our results show a positive and robust effect of local human capital on rents. This unambiguously demonstrates that the concentration of human capital at the local level generates positive externalities. As for the relative importance of consumption and production externalities, our results suggest that the two effects have a similar impact on wages.
    Date: 2005–08
  2. By: Raffaello Bronzini; Paolo Piselli
    Abstract: In this paper we estimate the long-run relationship between total factor productivity, R&D capital stock and human capital in the Italian regions between 1980 and 2001. We exploit recent developments of panel cointegration techniques to estimate the cointegration relationship, allowing for endogeneity and heterogeneity of regional cointegration vectors. The evidence shows that there exists a long-run equilibrium among the variables and that human capital elasticity is larger than R&D elasticity. Conditioned on the long-run equilibrium, we set out an Error Correction Model of TFP growth. In this framework, we test for exogeneity of TFP determinants, by carrying out Granger-causality tests. Our findings show that human capital is exogenously generated out of the model, while TFP and R&D are simultaneously determined.
    Date: 2005–08
  3. By: Rita Almeida (World Bank and IZA Bonn); Pedro Carneiro (University College London, IFS, cemmap and IZA Bonn)
    Abstract: In this paper we estimate the rate of return to firm investments in human capital in the form of formal job training. We use a panel of large firms with unusually detailed information on the duration of training, the direct costs of training, and several firm characteristics such as their output, workforce characteristics and capital stock. Our estimates of the return to training vary substantially across firms. On average it is -7% for firms not providing training and 24% for those providing training. Formal job training is a good investment for many firms and the economy, possibly yielding higher returns than either investments in physical capital or investments in schooling. In spite of this, observed amounts of formal training are very small.
    Keywords: on-the-job training, panel data, production function, rate of return
    JEL: C23 D24 J31
    Date: 2006–01
  4. By: Enrique López-Bazo; Rosina Moreno
    Abstract: Theoretical contributions to the literature have stressed the role of human capital in promoting economic growth. However, the empirical exercises have provided mixed evidence on the real effect of such type of capital. Most of the evidence has been obtained by estimating growth equations or production functions using samples of (heterogeneous) countries. In this paper, we report empirical evidence on the effects of human capital in the sample of Spanish regions. As they are supposed to be more homogeneous economies from an institutional, social and economic perspective, we assume that the evidence provide in this paper is a more robust measure of the real effects of human capital in stimulating the take off of lagging economies. We departure from the traditional empirical approach as our estimates come from the dual framework. This easily allows us to get not only the aggregate return to human capital, but also some other important measures such as its shadow price, that is the willingness to pay for an extra year of education of firm’s employees, and the degree of complementariety/substitutability with other types of capital. Results suggest that human capital has exerted a significant effect in the Spanish regions, which is stronger in the less developed ones. It not only have a direct effect but an indirect one by compensating the mechanism of decreasing returns to physical capital. Important conclusions for the assessment and design of regional development policies can be derived from such results.
    Date: 2005–08
  5. By: Osang, Thomas (Department of Economics, Southern Methodist University); Sarkar, Jayanta (Department of Economics, Southern Methodist University)
    Abstract: We consider growth and welfare effects of lifetime-uncertainty in an economy with human capital-led endogenous growth. We argue that lifetime uncertainty reduces private incentives to invest in both physical and human capital. Using an overlapping generations framework with finite-lived households we analyze the relevance of government expenditure on health and education to counter such growth-reducing forces. We focus on three different models that differ with respect to the mode of financing of education: (i) both private and public spending, (ii) only public spending, and (iii) only private spending. Results show that models (i) and (iii) outperform model (ii) with respect to long-term growth rates of per capita income, welfare levels and other important macroeconomic indicators. Theoretical predictions of model rankings for these macroeconomic indicators are also supported by observed stylized facts.
    Keywords: Health, Life Expectancy, Human Capital, Public Spending, Endogenous Growth
    JEL: I1 I2 O1 H5
    Date: 2005–09–01
  6. By: Eliana Baici; Giorgia Casalone
    Abstract: Since Solow’s (1957) contribution, human capital entered in the debate on economic growth as a leading long period development factor. If from a theoretical point of view the role of human capital on economic growth both directly or throughout its use in the R&D activities is fully accepted, from an empirical perspective the results are much more controversial, strictly depending on the quality of data. A recent analysis by Aghion and Cohen (2004) put in evidence that high-level human capital has a positive effect on economic performance only if a country is close to the technological frontier: countries that are far from this frontier, specialised in traditional sectors, can growth, almost in the short run, even exploiting medium-level human capital. This analysis induce at looking at the link between human capital and growth with a greater detail, trying to disclose the effect of different human capital levels in a country, such as Italy, traditionally oriented toward a low/medium technology production. Using, beyond the usual proxies of human capital, some measures of its quality and of its interrelation with R&S sector, we would like to give a new contribution to the analysis of regional growth in Italy in the period 1980-2001. The panel approach, here used, allows us to take account of the temporal variability and to check for omitted variable specific for regions and persistent over time.
    Date: 2005–08
  7. By: Christophe Muller (Universidad de Alicante); Christophe Nordman (DIAL, París)
    Abstract: In this paper, we study the return to human capital variables for wages of workers observed in Tunisian matched worker-firm data in 1999. This reveals us how returns to human capital in a Less Developed Country like Tunisia may differ from the industrial countries usually studied with matched data. We develop a new method based on multivariate analysis of firm characteristics, which allows us most of the benefits obtained by introducing firm dummies in wage equations for studying the effect of education. It also provides a human capital interpretation of the effect of these dummy variables. Moreover, in the studied data, using three firm characteristics easily collectable yields results close to those obtained by using the matched structure of the data. The workers with low wages or low conditional wages experience greater returns to human capital than workers belonging to the middle of the wage distribution, while their return to schooling is significantly lower than that of high wage workers. The estimates support the hypothesis that human capital is associated with positive intra-firm externality on wages. Therefore, a given worker would be more productive and better paid in an environment strongly endowed in human capital. However, the low wage workers do not take advantage of the human capital in the firm. Conversely, the low wage workers benefit from working in the textile sector in terms of wages unlike the middle and high wage workers. Finally, the low wage workers and high wage workers benefit from an innovative environment, while the middle wage workers do not.
    Keywords: Wage, returns to human capital, matched worker-firm data, quantile regressions, factor analysis, Tunisia
    JEL: J24 J31 O12
    Date: 2005–11
  8. By: Marisa Hidalgo (Universidad de Alicante)
    Abstract: The belief that peers' characteristics influence the behavior and outcomes of students in school has been important in shaping public policy. How peers affect individuals depends on the educational system prevailing. I analyze two different systems: tracking and mixing, and I propose several criteria to compare them. I find that at compulsory level, average human capital across the population is maximized under tracking, although tracking does not dominates mixing according to first order stochastic dominance. The education system that maximizes college attendance depends on the income level in the population and on the opportunity cost of college attendance.
    Keywords: Peer Effects, Tracking, Mixing, Income Premium
    JEL: D63 I28 J24
    Date: 2005–03
  9. By: Benoit Dostie (HEC Montréal, CIRPÉE, CIRANO and IZA Bonn); Pierre Thomas Léger (HEC Montréal, CIRPÉE, CIRANO)
    Abstract: Several papers have tested the empirical validity of the migration models proposed by Borjas (1987) and Borjas, Bronars, and Trejo (1992). However, to our knowledge, none has been able to disentangle the separate impact of observable and unobservable individual characteristics, and their respective returns across different locations, on an individual's decision to migrate. We build a model in which individuals sort, in part, on potential earnings - where earnings across different locations are a function of both observable and unobservable characteristics. We focus on the inter-provincial migration patterns of Canadian physicians. We choose this particular group for several reasons including the fact that they are paid on a fee-for-service basis. Since wage rates are exogenous, earning differentials are driven by differences in productivity. We then estimate a mixed conditional-logit model to determine the effects of individual and destination-specific characteristics (particularly earnings differentials) on physician location decisions. We find, among other things, that high-productivity physicians (based on unobservables) are more likely to migrate to provinces where the productivity premium is greater, while low-productivity physicians are more likely to migrate to areas where the productivity premium is lower. These results are consistent with a modified Borjas model of self-selection in migration based on both unobservables and observables.
    Keywords: migration, self-selection, earnings, longitudinal data, productivity
    JEL: J24 J61 C23 C35
    Date: 2006–01
  10. By: Abigail Wozniak (University of Notre Dame and IZA Bonn)
    Abstract: It is unclear whether educational disparities in internal migration levels reflect important economic differences or simply different consumption choices. I answer this question empirically by testing for educational differentials in the likelihood that young workers undertake and succeed at arbitrage migration. I find that young college graduates are two to five times more likely than less educated workers to reside in a state with high labor demand at the time they entered the market. Among college graduates, cross-state migration by college graduates equalizes the wage impact of early career labor demand shocks in their home states. This is not true for less educated workers. The lack of wage convergence is most severe for cohorts who entered the labor market during periods of high spatial variation in state conditions and low national employment growth. My results are consistent with theories of educational differences in migration that assume less educated workers are credit constrained, and cast doubt on several other explanations for the difference.
    Keywords: internal migration, local labor markets, education
    JEL: J6
    Date: 2006–01
  11. By: Signe Jauhiainen
    Abstract: There is empirical evidence (see e.g. Costa & Kahn 2000) that the educational background of both spouses has an effect on regional concentration. Finnish people have been migrating to urban regions. Especially higher education graduates prefer to live in cities. Because of this process human capital is concentrated in urban regions. Regional concentration of human capital can also be looked from a family perspective. A higher education graduate often has a spouse who has also graduated from university. In this situation the family moves to a region where they can find satisfying jobs. This study examines the residential choice of couples in which both spouses have higher education degree. The aim of this study is to find out where these couples live. In addition, families with different educational backgrounds are compared. The comparison might tell about the reasons of a family’s residential choice. Micro level data is used in empirical analysis.
    Date: 2005–08
  12. By: Sweetman, Arthur
    Abstract: This article analyses the relationship between the quality of education that immigrants received in their home country, as measured by international test scores, and their success in the Canadian labour market.
    Keywords: Education, Labour, Educational attainment, Labour force participation
    Date: 2004–12–15
  13. By: Finnie, Ross; Laporte, Christine; Lascelles, Eric
    Abstract: This paper presents new evidence on the relationships between access to postsecondary education and family background. It uses the School Leavers Survey (SLS) and the Youth in Transition Survey (YITS) to analyse participation rates in 1991 and 2000.
    Keywords: Social conditions, Education, Families, Educational attainment
    Date: 2004–08–18
  14. By: Christophe Muller (Universidad de Alicante); Christophe Nordman (DIAL, París)
    Abstract: From Tunisian matched worker-firm data in 1999, we study the returns to human capital for workers observed in two leading manufacturing sectors. Workers in the mechanical and electrical industries (IMMEE) benefit from higher returns to human capital than their counterparts in the Textile-clothing industry. In the IMMEE firms, low wage workers experience greater returns to labour market experience than high wage workers. The wage premium for on-the-job training is substantial for both sectors. However, taking into account whether formal training is still ongoing at the time of the survey, our results clearly indicate that workers bear heavy costs for their training. Our analysis shows that on-the-job training (OJT) and education can be efficient channels of policies aiming at raising earnings for low wages as well as high wages workers. However, careful consideration of the industrial sector should accompany these policies since specific impact of education, experience, OJT are found in the studied sectors.
    Keywords: wage, returns to human capital, matched worker-firm data, quantile regressions, Tunisia
    JEL: J24 J31 O12
    Date: 2005–02
  15. By: Picot, Garnett; Morissette, René; Ostrovsky, Yuri
    Abstract: This study extends previous work on the evolution of the education premium, and investigates the existence of diverging university/high school earnings ratio trends across industries in the knowledge-based economy. The study also discusses the changing demand for high-skilled workers by comparing relative wages of university graduates holding degrees in "applied" fields to those of other university graduates (the "field" premium).
    Keywords: Education, Labour, Educational attainment, Salaries and wages
    Date: 2004–09–29
  16. By: Christophe Muller (Universidad de Alicante); Christophe Nordman (DIAL, París)
    Abstract: We study the relationship of wages and education and training practices in Morocco in a context of trade and liberalisation reforms in a matched worker-firm data of eight exporting firms in two industrial sectors: Metallurgical-Electrical industries and Textile-Clothing. We find that the specific characteristics of the surveyed firms little affect worker wages. Moreover, the textile sector does not appear to be a significant channel for promoting skills in the economy. The minimal wage legislation is found to exert a positive pressure on wages. Also, some evidence of gender wage gap exists in the data. In these data, the effects of education and experience on wages are quite limited below the third quantile of wages, as well as the role of apprenticeship. In contrast, On-the-Job Training (OJT) much contributes to labour productivity as measured by wage levels. Most of the OJT is concentrated in the Metallurgical-Electrical industries. Education is positively correlated to OJT. Moreover, estimates of explanatory relationships of task organisation (chain gangs, teams, supervision and executive workers) show the powerful sector and educational determinations of job organisation in the firms. Then, our results suggest that the impact of worker education may take indirect routes and not only appear through education coefficients in wage regressions.
    Keywords: wage, returns to human capital, matched worker-firm data, quantile regressions, Tunisia
    Date: 2005–04
  17. By: Oreopoulos, Phil
    Abstract: Compulsory school laws have existed in Canada for more than a hundred years, and policies to mandate further education continue to be discussed. This paper examines the impact of these laws on education attainment and on subsequent social economic outcomes for individuals compelled to stay in school. The findings indicate that mandating education substantially increased adult income and substantially decreased the likelihood of being below the low income cut-off, unemployed, and in a manual occupation. Considering possible costs incurred while attending school, these findings suggest compulsory schooling legislation was effective in generating large lifetime gains to would-be-dropouts.
    Date: 2005–05–19
  18. By: Finnie, Ross; Lascelles, Eric; Sweetman, Arthur
    Abstract: This research finds that family background (parental education level, family type, ethnicity, location) has important direct and indirect effects on post-secondary participation. The indirect effects of background operate through a set of intermediate variables representing high school outcomes and related attitudes and behaviours. Overall, the large fraction of the family background effect that operates through indirect channels indicates that the period of life before post-secondary financing and related issues become important is crucial for equitable and efficient post-secondary access. These results are based on two sex-specific measures of access (Any Post-secondary, and University) obtained from Statistics Canada's School Leavers and Follow-Up Surveys.
    Keywords: Social conditions, Education, Families, Educational attainment
    Date: 2005–01–18
  19. By: Christopher Cornwell (University of Georgia); Kyung Hee Lee (Sogang University); David B. Mustard (University of Georgia and IZA Bonn)
    Abstract: A common justification for HOPE-style merit-aid programs is to promote and reward academic achievement, thereby inducing greater investments in human capital. However, grade-based eligibility and retention rules encourage other behavioral responses. Using data extracted from the longitudinal records of all undergraduates who enrolled at the University of Georgia (UGA) between 1989 and 1997, we estimate the effects of HOPE on college GPA, course selection, and major choice, treating non-residents as a control group. First, we find that HOPE increased resident freshman GPA by 0.13 point, while its effect on GPA after the first year is weak. Second, HOPE reduced the number of credit hours completed in math and science core curriculum courses during the first year, and this effect persisted into the second at roughly the same magnitude. Over both years, the estimated program effects imply that residents completed about 1.2 fewer math and sciences credit hours. Finally, the likelihood that the average resident freshman would choose to major in Education jumped 1.2 percentage points relative to their out-of-state counterparts after HOPE was introduced and the scholarship's influence on this decision was more pronounced for women and whites.
    Keywords: merit aid, education finance
    JEL: I2
    Date: 2006–01
  20. By: Lipps, Garth
    Abstract: Early adolescence is a time of rapid social, cognitive, and physical change. For some youth, these changes can make this period a vulnerable point in development. Adding to the stress, some students transfer from an elementary school to a middle school or to a comprehensive high school. While the impact on youth of moving to a higher level of schooling has been the focus of intense research and debate in the United States, surprisingly little research has been conducted examining how Canadian youth make this transition within the context of Canadian schools. With this in mind, this paper examines the academic, behavioural and emotional adjustment of Canadian adolescents who transfer from an elementary school to a middle or comprehensive high school and compares their outcomes to those of a group of youth who did not change schools. Results of several statistical analyses suggest that changing schools had little systematic association to adolescents' academic outcomes. This held true regardless of whether the school was a middle school or a comprehensive high school. Similarly, transferring to a middle school had little negative association to adolescents' emotional and behavioural outcomes. Indeed, with respect to social aggression, the analyses suggested that students in middle schools may use indirect or socially directed aggression less frequently than students who remained in elementary school. However, transferring directly from an elementary school to a comprehensive high school appeared to have some negative emotional consequences. Youth who moved directly from an elementary school to a high school reported greater symptoms of physical stress. Further, female students who directly transfer to high schools at ages 12 and 13, reported higher levels of depressive affect than female adolescents who remained in an elementary school.
    Keywords: Education, Social conditions, Students, Social behaviour
    Date: 2005–03–01
  21. By: Drolet, Marie
    Abstract: This paper examines the extent to which the relationship between participation in post-secondary education and family background, namely parental income and parental education changed between 1993 and 2001. The results support a long-standing pattern that university participation rates are highest among youths from high-income families and of highly educated parents. There is no evidence to suggest that this relationship between university participation and family background changed over the 1993-2001 period. Although university participation rates generally rise as family incomes increase, there is little difference in participation rates among youths from modest-income (below $75,000) and low-income families. Overall, the correlation between university participation and family income changed very little between 1993 and 2001. Next, when taking account of both parental education and parental income, university participation rates are more strongly associated with parents' level of education than with their income. The paper discusses significant data gaps and concludes that these data gaps do not have important implications on conclusions about the relationship between post-secondary education and family background throughout the 1993-2001 period.
    Keywords: Education, Educational attainment
    Date: 2005–02–16
  22. By: Peter W. De Langen
    Abstract: The quality and availability of labour is essential for the economic performance of clusters. The availability of labour in clusters is superior compared to locations outside clusters, because labour is more mobile in clusters, education services in clusters are better and employees in clusters have a higher willingness to invest in specific skills. These effects arise ‘spontaneously’, as a result of ‘market forces’. Apart, from these effects, in some clusters, firms and governments also actively aim to improve the quality of the labour pool in the cluster. Clusters differ in the extent to which relevant stakeholders manage to invest in the quality of the labour pool. Thus, superior ‘organising capacity’ is a potential source of competitive advantage of a cluster vis-à-vis other clusters. This paper presents an analysis of these efforts of firms and governments to improve the quality of the labour force in three seaport clusters. The concept of a ‘training and education regime’ is used to analyse efforts of firms and governments to improve the labour pool. The results of three case studies of port clusters lead to a number of conclusions. First, the assumption that the quality of training and education regime differs substantially per cluster is validated. Second, the presence of a ‘regime manager’ adds to the quality of Rotterdam’s training and education regime. Such an organisation may be effective across countries and clusters. Finally, the presence of leader firms, willing to invest in training and education improves an education regime.
    Date: 2005–08
  23. By: Leslie S. Stratton (Virginia Commonwealth University and IZA Bonn); Dennis M. O’Toole (Virginia Commonwealth University); James N. Wetzel (Virginia Commonwealth University)
    Abstract: We use data from the 1990/94 Beginning Post-Secondary Survey to determine whether the factors associated with long-term attrition from higher education differ for students who initially enrolled part-time as compared to for students who initially enrolled full-time. Using a two-stage sequential decision model to analyze the initial enrollment intensity decision jointly with attrition, we find no evidence of correlation in the unobservables that necessitates joint estimation, but substantial evidence that the factors associated with attrition differ by initial enrollment status. The timing of initial enrollment, academic performance, parental education, household characteristics, and economic factors had a substantially greater impact on those initially enrolled full-time, while racial and ethnic characteristics had a greater impact on those initially enrolled part-time. The results of our study suggest that separate specifications are necessary to identify at-risk full-time as compared with at-risk part-time students.
    Keywords: college enrollment, college dropout, part-time enrollment
    JEL: I21
    Date: 2006–01
  24. By: Nigel C. O'Leary (WELMERC, University of Wales Swansea); Peter J. Sloane (WELMERC, University of Wales Swansea and IZA Bonn)
    Abstract: Earlier papers have found considerable heterogeneity in the returns to degrees in relation to subjects of study, degree classification and higher education institution. In this paper we examine heterogeneity of returns across British regions using the Labour Force Survey. We find substantial variations in the financial rewards available to graduates across regions with much higher returns in London and the South East than elsewhere, although adjusting for regional differences in the cost-of-living narrows such differences considerably. Decompositional analysis, after controlling for regional differences in both occupational and industrial structures, suggests that coefficient effects dominate composition effects, consistent with agglomeration effects being important. These results have implications for the recent changes to student funding in England, Scotland and Wales.
    Keywords: education, degree, rates of return, regions
    JEL: A22 A23 I21 J31 R1
    Date: 2006–01
  25. By: Magali Beffy (CREST-INSEE and IZA Bonn); Moshe Buchinsky (UCLA, CREST and NBER); Denis Fougère (CNRS, CREST and IZA Bonn); Thierry Kamionka (CNRS and CREST); Francis Kramarz (CREST-INSEE, CEPR and IZA Bonn)
    Abstract: We estimate a model of the joint participation and mobility along with the individuals’ wage formation in France. Our model makes it possible to distinguish between unobserved person heterogeneity and state-dependence. We estimate the model using state of the art bayesian methods employing a long panel (1976-1995) for France. Our results clearly show that returns to seniority are small, and for some education groups are close to zero. The specification here is the same as that used in Buchinsky, Fougère, Kramarz and Tchernis (2002), where the returns to seniority were found to be quite large. This result also holds when using the method employed by Altonji and Williams (1992) for both countries. It turns out that differences between the two countries relate to firm-to-firm mobility. Using a model of Burdett and Coles (2003), we explain the rationale for this phenomenon. Specifically, in a low-mobility country such as France, there is little gain in compensating workers for long tenures because they tend to stay in the firm for most, if not all, of their career. This is true even in cases where individuals clearly possess substantial amount of firm-specific human capital. In contrast, for a high-mobility country such as the United States, high returns to seniority have a clear incentive effect, and firms are induced to pay the premium associated with firm-specific human capital to avoid losing their most productive workers.
    Keywords: participation, wage, job mobility, returns to seniority, returns to experience, individual effects
    JEL: J24 J31 J63
    Date: 2006–01

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