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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