Bias in returns to tenure when firm wages and employment comove

Abstract

"It is well known that, unless worker-firm match quality is controlled for, reduced form estimates of returns to firm tenure will be biased. In this paper we show that there is a further pervasive source of bias, namely the co-movement of firm employment and firm wages. We argue that firm-year fixed effects must be used to eliminate this bias. Estimates from two large panel datasets from Germany and Portugal show that the bias is empirically important. Finally we show that the results extend to tenure correlates used in macroeconomics such as the minimum unemployment rate since joining the firm." (Author's abstract, IAB-Doku) ((en))

Cite article

Snell, A., Martins, P., Stüber, H. & Thomas, J. (2018): Bias in returns to tenure when firm wages and employment comove. A quantitative assessment and solution. In: Journal of labor economics, Vol. 36, No. 1, p. 47-74. DOI:10.1086/693867