Human capital wage premia and unionism : the case of the British labour market in the 1990s

Abstract

The significance of seniority for individuals' wage growth has been a very popular topic in labour economics for the past three decades. The extent to which wages rise with employer-tenure is fundamental in the understanding of the dynamics of earnings and labour market behaviour. This thesis is an empirical study of the British labour market in the 1990s and attempts to shed some light on the different kinds of skills individuals acquire in work, and their contribution to the wage determination process. Specifically, the author examines the role of seniority and employer-specific skills in earnings and explores whether industry and occupational specificity in the accumulated human capital can explain part of the variation in wages. Furthermore, the author investigates the interaction of institutional arrangements with these human capital wage premia, giving a particular attention to union representation. Throughout the empirical analysis, the issue of potential endogeneity bias in the estimates of interest is also addressed and alternative estimators are employed for that purpose. For part of the workforce, mainly in 'blue-collar and low-paying jobs, employer-tenure appears to have a significant impact on wage progression, which is further strengthened when employed in a more structured environment, like in the union sector, with well-set promotion ladders and pay rules. Occupational expertise, in contrast, is estimated to play a far more important role in the earnings profiles of those in prestigious, high-paying but more competitive jobs. This is particularly true in less restricted workplaces, where there is no union representation or seniority-pay scales, like in the non-union sector. Overall, the findings of this study provide some rather useful insights into the patterns that govern individuals' wage growth and are informative about individuals' employability and job mobility that could prove to be helpful to policy makers on unemployment and wage inequality issues