The Returns to Seniority in France (and Why are They Lower than in the United States ?)

We estimate a model of the joint participation and mobility along with the individuals’wage formation in France. Our model makes it possible to distinguish between unobservedperson heterogeneity and state-dependence. We estimate the model using state of the artbayesian methods employing a long panel (1976-1995) for France. Our results clearly showthat returns to seniority are small, and for some education groups are close to zero. Thespecification here is the same as that used in Buchinsky, Fougère, Kramarz and Tchernis(2002), where the returns to seniority were found to be quite large. This result also holdswhen using the method employed by Altonji andWilliams (1992) for both countries. It turnsout that differences between the two countries relate to firm-to-firm mobility. Using a modelof Burdett and Coles (2003), we explain the rationale for this phenomenon. Specifically, ina low-mobility country such as France, there is little gain in compensating workers for longtenures because they tend to stay in the firm for most, if not all, of their career. This is trueeven in cases where individuals clearly posses susbtantial amount of firm-specific humancapital. In contrast, for a high-mobility country such as the United States, high returns toseniority have a clear incentive effect, and firms are induced to pay the premium associatedwith firm-specific human capital to avoid losing their most productive workers.