Wage progression of less skilled workers in Canada: Evidence from
the SLID (1993-1998)
by
Xuelin Zhang
Business and Labour Market Analysis Division
Analytical Studies
Branch research paper series, No. 194
The wage progression of less skilled
workers is of particular policy interest in light of evidence of skill-biased
technology changes. There exist two conflicting views regarding the wage progression
of less skilled workers. One view believes that work experience is the driving
force for wage growth of less skilled workers, so effective policies should encourage
workers to participate in the labour market and accumulate work experience. The
other view stresses that less skilled workers are usually locked into dead-end
jobs in which wages are stagnant and policies that facilitate job shopping (changing
jobs and employers) would be desirable.
Job tenure is a key factor in testing
the hypothesis that less skilled workers are locked into dead-end jobs. If the
return to tenure is zero, the hypothesis cannot be rejected. An extended human
capital model of wage growth for less skilled workers is estimated using data
from the Survey of Labour and Income Dynamics (SLID) 1993 to 1998. In order to
compare the wage growth mechanisms for workers with different skill endowments,
the model is also estimated for workers with higher skill levels. The result implies
that the return to job tenure for less skilled workers is significantly different
from zero. This is inconsistent with the view that less skilled workers are locked
into dead-end jobs.
The return to job tenure is also found to be greater
than the return to total labour market experience for less skilled workers. This
finding supports the notion that firm-specific human capital acquired by less
skilled workers substitutes for their generally low human capital endowments and
the accumulation of firm-specific human capital by less skilled workers greatly
improves their earnings prospect.
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