Dynamic Labor Market Competition and Wage Seniority

We design an overlapping generations model of the labor market. Experienced
workers bear costs of switching employers, whereas the segment for junior
workers is horizontally differentiated. The literature typically explains wage
seniority premia with reference to productivity gains generated by the accumulation
of worker experience or mechanisms associated with incomplete information.
In contrast, this paper characterizes how the wage seniority premium
depends on the relative intensities of competition in the markets for junior and
senior workers. In particular, we show that a wage seniority premium may prevail
even under circumstances where senior workers are less productive than
junior workers.