Employee Heterogeneity and Within-Firm Experience-Earnings Profiles: A Nonparametric Analysis
Abstract
Abstract
Motivated by a priori uncertainty with respect to the parametric specification of
the earnings function, I model the earnings function as semiparametric partially
linear model and follow the estimation approach described in Robinson (1988).
Using data from the personnel records of a large major UK based financial
sector employer, I let years of within-firm and pre-firm experience form the
nonparametrically modelled component of the earnings function. It is shown that
the estimated within-firm experience earnings profiles, which are conditional
upon a given number years of pre-firm experience accumulated before entry,
converge and even overtake as years of pre-firm experience increases. This result
can be explained with the recognition of unobservable explanatory variables,
such as the match and individual quality of the employees, both of which are a
function of years of within- and pre-firm experience and wages.