published in: Research in Labor Economics, 2010, 30, 155-187
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.
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