Seniority, Experience, and Wages in South Korea

Key findings from this study

• The study found that 10 years of firm tenure have no significant wage effect, while 20 years of tenure increase wages by 11%-30%.
• The authors report that sector-specific skills drive wage growth substantially more than occupation-specific tenure.
• The researchers demonstrate that returns to different tenure types are nonlinear and heterogeneous across the employment lifecycle.

Overview

This study examines wage returns to general experience, firm tenure, and sector- or occupation-specific tenure in South Korea using 20 years of longitudinal panel data. The research isolates causal effects by addressing unobserved heterogeneity through instrumental variable estimation and two-step regression approaches. The analysis reveals heterogeneous returns to different tenure types across the employment lifecycle.

Methods and approach

The researchers analyzed Korean Labor and Income Panel Study (KLIPS) data spanning two decades. They employed the Altonji and Shakotko instrumental variable approach to address endogeneity bias from unobserved worker heterogeneity. The Topel two-step estimation method further refined causal inference. This dual-method strategy accounts for selection effects and time-varying unobservables that confound naive tenure-wage associations.

Results

Ten years of firm tenure produces no statistically significant wage effect. However, 20 years of tenure generates wage increases between 11% and 30%, indicating nonlinear returns accumulate at longer durations. Sector-specific human capital emerges as the primary driver of wage growth. Occupation-specific tenure returns remain minimal despite theoretical expectations. General experience effects follow conventional patterns consistent with standard human capital theory.

Implications

The findings challenge linear models of tenure compensation and suggest wage-setting practices in South Korea disproportionately reward long-tenured workers. Firms may structure compensation to encourage worker retention at advanced career stages. Policy discussions regarding labor mobility and worker compensation should account for these nonlinear tenure effects. The minimal occupation-specific returns suggest industry knowledge matters more than role expertise for wage advancement. These patterns may reflect institutional features of Korean labor markets, including seniority-based wage systems.

Scope and limitations

This summary is based on the study abstract and available metadata. It does not include a full analysis of the complete paper, supplementary materials, or underlying datasets unless explicitly stated. Findings should be interpreted in the context of the original publication.