The evolution of earnings distributions and gender pay differences in the internal labour market of a large financial sector firm in the UK
Personnel economics has developed as a distinctive discipline within economics. The growth in this area of economics has been predominately theoretical in nature due to the lack of available data. Nevertheless, over the last 10 years several economists have gained access to personnel records of firms to test the predictions of the theoretical works in personnel economics. This thesis follows in the spirit of the available empirical work using personnel records of a large financial sector firm operating in the UK over the period 1989 to 2001, empirically investigating the evolution of earnings distributions and gender pay differences in the internal labour market of this firm. The thesis initially replicates findings on the structure of earnings between incumbents and outsiders (entrants) as outlined in Baker, Gibbs and Holmstrom (1994b). The key questions are whether movements of wages over time are consistent with the theoretical notion of an internal labour market and whether incumbents do better than outsiders. Secondly, the thesis explores more closely the evolution of earnings distribution of a particular cohort in a quantile regression framework. Finally, a central proposition in the personnel economics literature is re-examined as outlined in Medoff and Abraham (1980, 1981) on estimating the returns to tenure with standard earnings functions. The thesis offers a reinterpretation of the Medoff and Abraham results using a new methodology as outlined in DiNardo et al. (1996) constructing counterfactual density estimates of earnings distributions. The empirical results bear evidence of a clear and unambiguous negative bias in the returns to tenure making a contribution to recently discussed ideas about the interpretation of observed wage functions as wage offer functions supporting the Stevens (2003) conjecture that the returns to tenure are negatively biased.