Working Paper: NBER ID: w2368
Authors: Katharine G. Abraham; Henry S. Farber
Abstract: One of the most prominent features of U.S. unionism is the key role played by seniority. However, in cross-sectional data, the positive association between seniority and earnings is typically much stronger for nonunion workers than for union workers. This finding has puzzled previous researchers, since it seems inconsistent with the generalization that seniority is more important in the union sector than in the nonunion sector. We show that standard estimates of the return to seniority are likely to be biased upward and argue that the bias is likely to be larger in the nonunion sector than in the union sector. Corrected estimates imply that the return to seniority is, in fact, larger in the union sector than in the nonunion sector.
Keywords: seniority; union jobs; nonunion jobs; wage determination
JEL Codes: J31; J51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| upward bias in estimated returns to seniority (J79) | larger for nonunion workers (J59) |
| individual heterogeneity (D29) | upward bias in returns to seniority (J78) |
| job-match heterogeneity (J79) | upward bias in returns to seniority (J78) |
| more able individuals (D29) | earn higher wages (J31) |
| more able individuals (D29) | stay longer on their jobs (J29) |
| workers on better jobs (J29) | earn more (J24) |
| workers on better jobs (J29) | stay longer (C41) |
| return to seniority for union workers (J58) | approximately 10% per year (G12) |
| return to seniority for nonunion workers (J58) | about 14% per year (G12) |
| corrected estimates of return to seniority for union workers (J39) | greater than for nonunion workers (J59) |
| corrected estimate for nonunion workers (J39) | not significantly different from zero (C12) |
| completed job duration (C41) | significantly impacts earnings (J31) |
| longer jobs (J29) | yield higher earnings (E25) |
| upward bias in returns to seniority (J78) | less severe in union sector (J58) |
| standardized wage-setting practices (J38) | limit reward for unobserved ability (D80) |