Industry-Specific Capital and the Wage Profile: Evidence from the NLSY and the PSID


Using data from the NLSY (1979-1991) and from the PSID (1981-1987), l seek to determine whether
there is any net positive return to tenure with the current employer once we control for industry-specific
capital. Using data from the PSID, Topel (JPE 1991) concluded that 10 years of seniority with an
employer translated into a net return of about 25%. However, once l include total experience in the
industry as an additional explanatory variable, the return to seniority is markedly reduced when 1 use
GLS while it virtually disappears when l use IV-GLS, although this conclusion varies somewhat
according to the occupation category. Note also that this result holds whether the analysis is carried out
at the 1-digit or 3-digit levels. Therefore, it seems that what matters most for the wage profile in terms
of human capital is not so much firm-specificity but industry-specificity. In other words, for these two
samples of workers, the wage formation process appears to be quite competitive.

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Journal of Labor Economics, Vol. 18, No. 2, April 2000
Working Papers