The wage premium for job seniority during the 1980s and early 1990s

In this article I use Panel Study of Income Dynamics (PSID) data to study whether the rewards for job tenure have fallen since the early 1980s, An upward-sloping seniority-wage profile is generally thought to be an important dimension of compensation during a career. However, recent interest in the incidence of layoffs and changes in the structure of firms gives rise to the possibility that employment contracts are less often being structured to reward tenure or that such contracts are more difficult to honor. Using a two-stage estimator to attempt to control unmeasured individual and job match effects on wages, I find some evidence that the wage premium paid to senior workers has declined moderately. However, I find that these results are mildly sensitive to alternative methods of handling the relatively noisy PSID tenure data.