DP4606 Is Seniority-Based Pay Used as a Motivation Device? Evidence from Plant Level Data

Author(s): Alberto Bayo-Moriones, José Enrique Galdón Sánchez, Maia Güell
Publication Date: September 2004
Keyword(s): human resource management practices, incentives, M52, monitoring
JEL(s): J30, M12
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4606

In this Paper we use data from industrial plants to investigate if seniority-based pay is used as a motivational device for production workers. Alternatively, seniority-based pay could simply be a wage-setting rule not necessarily related to the provision of incentives. Unlike previous papers, we use a direct measure of seniority-based pay as well as measures of monitoring devices and piece-rates. We find that firms that offer seniority-based pay are less likely to offer explicit incentives. They are also less likely to invest in monitoring devices. We also find that firms that offer seniority-based pay are more likely to engage in other human resource management policies that result in long employment relationships. Overall these results suggest that seniority-based pay is indeed used as a motivation device.