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

• Authors: Maia Güell.
• BSE Working Paper: 110611 | September 15
• Keywords: Incentives , Human Resource managament practices , monitoring
• JEL codes: M52, M12, J30
• Incentives
• Human Resource managament practices
• monitoring

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.