How Worker Productivity and Wages Grow with Tenure and Experience: The Firm Perspective

How worker productivity evolves with tenure and experience is central to economics, shaping, for
example, life-cycle earnings and the losses from involuntary job separation. Yet, worker-level
productivity is hard to identify from observational data. This paper introduces direct measurement
of worker productivity in a firm survey designed to separate the role of on-the-job tenure from
total experience in determining productivity growth. Several findings emerge concerning the
initial period on the job. (1) On-the-job productivity growth exceeds wage growth, consistent
with wages not being allocative period-by-period.(2) Previous experience is a substitute, but a far
less than perfect one, for on-the-job tenure. (3) There is substantial heterogeneity across jobs in
the extent to which previous experience substitutes for tenure. The survey makes use of
administrative data to construct a representative sample of firms, check for selective non-
response, validate survey measures with administrative measures, and calibrate parameters not
measured in the survey.