Wage-tenure profiles in contractual labor markets

by Hong W. Tan

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There are several competing explanations for the existence of long-term jobs; the specific human capital hypothesis and, more recently, the agency and self-selection models. To date, no attempt has been made to distinguish empirically between them. This paper explores an alternative approach of distinguishing among the competing theories. It isolates two variables--the rate of employment growth and the rate of technical change--that are hypothesized to determine the profitability of specific training investments but not the use of incentive schemes. Empirical tests of the relationship between wage-tenure profiles and the predicted distribution of specific human capital can be used to ascertain the relative efficacy of competing theories. Section II presents the analytic framework and justification for these hypotheses. The data and variables used in the analysis are discussed in Sec. III. The empirical findings are reported in Sec. IV and their implications for the length of implicit labor contracts discussed. Concluding comments appear in the final section.

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