Consequences of Seniority Wages on the Employment Structure

Abstract

The author examines seniority wage profiles in German establishments to discern hiring patterns with respect to age and sex. Using the country's linked employer-employee dataset (LIAB) over the period 1997–2004 and calculating establishment seniority wage profiles directly from individual seniority wages, he finds that establishments with steeper seniority wage profiles than the average establishment in their sector can keep their employees longer but hire fewer older employees. In addition, these firms prefer to hire employees with little experience in other firms and young men instead of young women. These findings imply at least two things: first, that establishments with internal labor markets use deferred payment as an incentive and give positions requiring long tenure to internal candidates and second, that such establishments offer fewer opportunities for unemployed or establishment switchers as well as young females and those with long previous experience in other firms.