Abstract:

I study how the returns to tenure vary across firms with different levels of productivity and how this affects wage dispersion and the cost of job loss. Using an extension of Abowd et al. (1999) and Danish administrative data, I find that workers at more productive firms tend to see larger increases in wages over time. In contrast, starting wages are only weakly related to firm productivity. I show that these differences across firms are not due to composition effects or "quick learner" workers sorting into productive firms, but are a causal effect of being employed at a productive firm. A third of these gains from tenure are portable when switching employers even when separating involuntarily, indicating that these differences in returns partly reflect heterogeneity across firms in the rate at which employees acquire general human capital.Worker mobility patterns suggest that non-portable gains are primarily driven by differences in the rate of learning about worker-firm match quality. Finally, I show that firm-specific returns significantly influence the cost of job loss, with a real earnings loss nearly twice as large for workers displaced from firms in the top quartile of the returns distribution compared to those from the bottom quartile.