Wage increases, along with job tenure, are one of the most robust empirical
regularities found in labor economics. Several theories explain these empirical
regularities, and such theories offer sharp empirical predictions for the
relation between productivity-tenure and wage-tenure profiles. The human
capital model, with cost and benefit sharing between workers and employers,
predicts a steeper productivity-tenure profile than wage-tenure profile. The
matching quality model predicts that the two profiles will overlap. Theories
that involve the information asymmetry between employers and employees
predict a steeper wage-tenure profile than productivity-tenure profile to induce
workers’ effort and enhance efficiency. This paper first estimate the
establishment-level production function using the total wage bill as a measure
of labor input using employer-employee matched data from Japan. After
conditioning on the total wage bill, those establishments with more of aged
workers produce less. Then we estimate the productivity-tenure profile and
the wage-tenure profile by estimating the plant-level production function and
the wage equation. These estimations offer a comprehensive test for the relative
applicability of the two theories on the wage-tenure profile. Estimation
results indicate a steeper wage-tenure profile than productivity-tenure profile
and point to the relative importance of the deferred wage payment contract. |
