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Seniority and Efficiency

James J. Anton

Scandinavian Journal of Economics 94 (3): 425-442, 1992

Abstract: The role of seniority in efficient compensation and employment arrangements between a firm and its labor pool is examined. Seniority is treated as an endogenous factor in a dynamic model with uncertainty. Nonseparability over time in preferences and production emerges as a pivotal aspect of seniority provisions in efficient allocations. The analysis focuses on two dynamic factors that have been emphasized in the literature; nonseparable worker preferences in leisure and a learning-by-doing process of human capital accumulation.