Seniority And Wage In China's Urban Labor Market

In this paper we study the effects of seniority, experience and education on wages in China's urban labor market, especially focusing on the effect of seniority on wages. Understanding the dynamic structure of wages is crucial for explaining labor market behavior and the potential impact of policies designed to affect this behavior. The wage, seniority and experience relationship is a fundamental element of this dynamic structure. Therefore, this paper focuses on the effects of seniority and experience on wages.In the beginning of this paper, we introduce the result and research of the western scholars about the relationship between wage and seniority. First of all, we introduce the Lazy Model to illustrate the fact that wage tend to grow with seniority. Then, we introduce two theories to explain the reason why seniority affects wages. The theories are human capital theory and the theories of compensation mechanism. Finally, we introduce the measurement methods used by the scholars and the empirical results obtained using the foreign data.Based on the foreign research ideas and methods, we use the microcosmic data of China's urban residents to study the effects of seniority on wages in China's urban labor market. We mainly study the following work.First, we consider the effect of seniority on wages for the whole of urban residents. Regression results show that the return of education is relatively large and the most important factor. The return of education is about 5.6%. On the contrary, the rate of the return of seniority and experience are small, only 0.3% and 1%. The results may encourage urban labor force to increase learning time in school, for higher return.Secondly, gender discrimination exists in labor market. Then, whether the effect of seniority for men is different from the effect for women and how much difference between them are the problems we interest. So we separately study men and women wage determinants. Regression results show the discrimination really exists and the effect is large. Male labor's coefficient is 0.3940 and female's coefficient is-0.1036. But the effect of education and seniority of women are larger than men. The effects of education and seniority of women are separately 6.72% and 0.548%, while the effects of men are separately 5.05% and 0.272%. Female seniority return is more than two times of male return. This result is caused two reasons. A reason is liquidity of women is larger than men in labor market. Company provides higher seniority return to women to attract female labor. The other reason is the gender discrimination. Female labor is paid less than male labor in the same case. Thus even if women and men receive the same seniority-related wage increase, the seniority return of women is large than men.Then, we study the seniority return in various working stages. The empirical results show that the seniority returns are very different in various working stages, while education return and general labor market experience return are relatively stable. Just beginning work to 5 years time, labor seniority average return is 4.9%; 5 to 10 years seniority the average return is 2.9%. The average return of over 10 years seniority almost is 0. Wage rise with seniority only up to about 10 years, and the marginal effect of other years of seniority is negative.Fourth, we study the seniority return of different occupational labor. Because the data constraints, we only consider five vocational category:Professional technicians, Skilled worker, Clerk, Unskilled worker and Commercial and service personal. The empirical results show the seniority returns between different vocational categories are very different. For professional technicians and skilled workers, the seniority average return in the beginning ten years is small, respectively 1.72% and 1.22%, while the general labor market experience return relatively is large, respectively 1.27% and 2.27%, and the education return is much larger. The facts show that the wage of technology jobs employees depends on education and general labor market experience. In contrast, for unskilled workers and clerks, the seniority average return in the beginning ten years is large, respectively 4.54% and 4.36%, while the average return of labor market experience is small, respectively 0.8% and 0.2%. The facts show the wage of unskilled workers and clerks depends on seniority related with the same company. For commercial and services, seniority return is only 0.8%. It is because commercial and services staff's wage mainly depends on their performance.Finally, we use quantile-regression estimator to study seniority. We find that seniority return of high income groups is low, while seniority return of low income groups is high. Why can the fact happen? In China, high-income groups generally engage the technical and management jobs which ask employee to acquire more accumulation of general labor market experience and more investment in education in school. While low-income groups generally engage those jobs which need less technology and in which the effect of general labor market experience is very small. However, the effect of seniority on wage is large.Summarize our study, we find that the sizes of seniority return is related with labor mobility. The greater labor mobility is, the larger seniority return is. On the contrary, the smaller labor mobility is, the smaller seniority return is. Our empirical results support Compensation Theory. We believe that the fact wage rise with seniority is due to company incentives in China.