Sebastian Buhai's Research in Economics

 

Working Papers

Returns to Tenure or Seniority? (with Miguel Portela, Coen Teulings and Aico van Vuuren), latest version Jan 2012, older versions: July 2009 (includes theory framework),    TI DP 08-010/3, IZA DP 3302; current stage: 2nd revise & resubmit at Econometrica

This study documents two empirical facts using matched employer-employee data for Denmark and Portugal. First, workers who are hired last, are the first to leave the firm. Second, workers' wages rise with seniority (= a worker's tenure relative to the tenure of her colleagues). The identification problems for the wage return to tenure are shown not to apply to the return to seniority because seniority is not a deterministic function of time. Controlling for tenure, the probability of leaving the firm decreases with seniority. The increase in expected seniority with tenure explains a large part of the negative duration dependence of the hazard. Using a variety of estimation methods, we show that a 10% increase in seniority raises your wage by 0.1-0.2%, depending on the country and the method applied. Conditional on ten years of tenure, one standard deviation of seniority raises your wage by 0.5 to 1.6 percent.

Keywords: wage dynamics, tenure, seniority, LIFO
JEL-codes: J31, J41, J63

  Tenure Profiles and Efficient Separation in a Stochastic Productivity Model (with Coen Teulings), latest version June 2011, older versions as TI DP 05-099/3 (revised Oct 06), IZA DP 1997; current stage: revise and resubmit at Journal of Business and Economic Statistics

We develop a theoretical model based on efficient bargaining, where both log outside wage and log wage in the current job follow a random walk. This setting allows the application of real option theory. We derive the efficient worker-firm separation rule. We show that wage data from completed job spells are uninformative about the true tenure profile. The model is estimated on the PSID. It fits the observed distribution of job tenures well. About 80% of the estimated wage returns to tenure is due to selectivity in the realized outside productivities.

Keywords:  random productivity growth, efficient bargaining, job tenure, inverse gaussian, wage-tenure profiles, option theory
JEL-codes: C33, C41, J31, J63

A Social Network Analysis of Occupational Segregation (with Marco van der Leij), latest version December 2010, older version as TI DP 06-016/1; current stage: in revision, new draft coming soon.

We develop a social network model of occupational segregation between different social groups, generated by the existence of positive inbreeding bias among individuals from the same group. If network referrals are important for job search, then expected homophily in the contact network structure induces different career choices for individuals from different social groups. This further translates into stable occupational segregation equilibria in the labor market. We derive the conditions for wage and unemployment inequality in the segregation equilibria and characterize first and second best social welfare optima. Surprisingly, we find that utilitarian socially optimal policies involve segregation.

JEL codes:  J24, J31, J70, Z13
Keywords:  Social Networks, Homophily, Inbreeding Bias, Occupational Segregation, Labor Market Inequality, Social Welfare

The Impact of Workplace Conditions on Firm Performance (with Elena Cottini and Niels Westergaard-Nielsen), version June 2008, also as ASB WP 08-13; current stage: in revision, new draft soon.

This paper estimates the impact of work environment health and safety practice on firm performance, and examines which firm-characteristic factors are associated with good work conditions. We use Danish longitudinal register matched employer-employee data, merged with firm business accounts and detailed cross-sectional survey data on workplace conditions. This enables us to address typical econometric problems such as omitted variables bias or endogeneity in estimating i) standard production functions augmented with work environment indicators and aggregate employee characteristics and ii) firm mean wage regressions on the same explanatory variables. Our findings suggest that improvement in some of the physical dimensions of the work health and safety environment (specifically, "internal climate" and "repetitive and strenuous activity") strongly impacts the firm productivity, whereas "internal climate" problems are the only workplace hazards compensated for by higher mean wages.

Keywords: occupational health and safety, work environment, production function estimation, firm performance, compensating wage differentials
JEL codes: J28, J31, L23

Firm downsizing, public policy, and the age structure of employment adjustments (with Hans-Martin von Gaudecker), version April 2012; current stage: preliminary, open for discussion

This paper studies the structure of workforce adjustments when firms facing adverse demand conditions are offered public financial incentives for downsizing. In particular, we are interested in how the age composition of employee outflows is shaped by corresponding age-dependent institutional arrangements. Our simple labour demand framework, with stochastic product demand and firing costs heterogenous in workers' early retirement eligibility, has as core prediction that distressed firms will dismiss with predilection those employees eligible to retire early. We test the model's implications on the entire set of mass layoff events in larger Danish private firms over 1980-2001, period covering several reforms to the early pension system. Our empirical conclusion is that that firms behave as predicted by our model with regards to their lower-educated workforce, but not towards their higher-educated employees. We suggest that an extension of our firm-level model to narrow within-firm employee categories with potentially asymmetric turnover responses to firm-level demand shocks can rationalize this finding.

Keywords:  early retirement, labour demand, employment adjustment, mass layoffs, LEED
JEL-codes:  H32, H55, J26, J65

Work in Progress (and some temporarily abandoned projects)

We provide a fresh analysis of the theory of compensating wage differentials (CWD) using unusually rich and detailed data on self-reported work environment conditions and worker risk attitudes, from a representative 4-wave (1990-2005, 5-year spaced) panel survey of workers, which we link to the Danish register, longitudinal, yearly, matched employer-employee data. Our study improves and extends previous CWD empirical analysis in several ways: a) in standard hedonic wage equations, we control for both individual and firm-specific time-invariant unobserved heterogeneity; we also report spell first-difference estimates where workers report changes in work conditions, within the same job spell; b) we account for worker heterogeneity in attitudes towards health and safery risks, from information on workers' smoking habits, and on their being parents of young children; c) we compare the results in a) and b) above with alternative results obtained by estimating the workers marginal willingness to pay for job amenities from their job separation hazards. For a), we find that the only work environment conditions compensated for by hourly wage premia, in the order of 4-6%, are related to flexibility in the working time ("shift premia"), namely "working in irregular shifts", "working in the evening" and "working at night". If in addition we account for the selection of workers in hazardous jobs based on the observed worker risk proxies and time-invariant worker unobservables, cf. b), we find negative selection of risk-lovers into shift-jobs, with sizable hourly wage premia of 18-26%, while positive or no selection, and no compensation, in other types of hazard work. Finally, cf. c), shift-jobs CWD estimates based on the worker's employment history have magnitudes in between those at a) and b). We rationalize our empirical results via a parsimonious model of job hazard premia and worker risk profiles.

We investigate the effects of performance pay (PP) on individual wage growth, within and between-firm earnings inequality, and worker-firm separation, using exhaustive Portuguese linked employer-employee longitudinal data for 1986-2007. This is the first economy-wide study in the incentive compensation literature attempting to account for the endogenous compensation policy of firms and for endogenous selection of workers across PP and non-PP firms. In our empirical analysis we are able to control for both unobserved worker and unobserved firm specific heterogeneity, and to proxy for the firm's costs of switching across PP and non-PP regimes. Inter alia, emphasis is placed on the determinants, effects, and dynamics of managerial incentive pay and turnover. We rationalize our findings by means of an extended Lemieux, MacLeod and Parent (2009, QJE) model.

 

Published Dissertations & Reports

Essays on Labour Markets: Worker-Firm Dynamics, Occupational Segregation and Workplace Conditions (Full Digital Version in the EUR Repository), PhD Thesis November 2008, Tinbergen Institute and Erasmus University Rotterdam, Thela Thesis -Academic Publishing Services, Amsterdam, The Netherlands, November 2008

Wages, Seniority and Separation Rates in a Stochastic Productivity Model: A Comparative Perspective,  MPhil Thesis in 2003, at the Tinbergen Institute, published as monograph at the  Lumen Publishing House, Iasi, Romania, February 2006

Quantile Regression: Overview and Selected Applications,  Ad-Astra Journal (Young Romanian Scientists' Journal), Vol. 4, 2005

Note on Panel Data Econometrics, NAKE Nieuws 15 (2), December 2003

 

Other unpublished work from my graduate student days (surveys, reports, course papers etc.)

On Risk in Educational Choice: Brief Overview and Research Note, December 2003

Investigating Reciprocal Motivation in Experimental Labor Markets, June 2003

Incomplete Contracts and the Theory of the Firm, January 2003

Job Search and Contact Networks, April 2002

* See also a list of courses followed during my graduate programs, with links to the instructors' webpages (for external summer schools and workshops see my extended CV).  


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