Early Starters versus Late Beginners

Chiappori, Pierre A.; Salanie, Bernard; Valentin, Julie

We consider a model of wage formation characterized by two features, learning and downward rigidity. We show that wages should exhibit a late‐beginning property: when one controls for the wage at date t, the wage at date t + 1 should be negatively correlated with the wage at date 6–1. We test this property on a sample of about 1,000 executives of a French state‐owned firm whose careers we observe for 15 years. This organization exhibits the features that charecterize internal labor markets; in particular, careers consist of sequences of discrete promotions, a fact that generates specific econometric problems. The results confirm the prediction.


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Journal of Political Economy

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March 10, 2015