Earnings - tenure profiles in the U.K. public and private sectors

Abstract

The thesis examines the effect of tenure on earnings in the British public and private sectors. The characteristic differences between the labour markets associated with the two sectors are examined. Several theories underlying the earnings-tenure effect are then assessed for their suitability in explaining earnings patterns in each of the sectors under analysis. Cross sectional estimation is carried out using one year of the New Earnings Survey Panel. The results show a higher return to tenure in central and local government than in the private sector or public corporations. There also appears to be a higher return to tenure for females in all sectors than for males. Explanations are offered for these observations, based on the labour market characteristics of the sectors noted earlier. An attempt is then made to correct for estimation biases associated with job match heterogeneity, which are purported to overstate return to tenure. The correction is based on techniques adopted in the recent American literature using instrumental variables. Despite the use of this process, the expected decrease in return to tenure is not observed unless certain key variables are omitted from the estimating equation.