Is Seniority-Based Pay Used as a Motivation Device? Evidence from Plant Level Data

In this paper we use data from industrial plants to investigate if seniority-based pay is used asa motivational device for production workers. Alternatively, seniority-based pay could simplybe a wage setting rule not necessarily related to the provision of incentives. Unlike previouspapers, we use a direct measure of seniority-based pay as well as measures of monitoringdevices and piece-rates. We find that firms that offer seniority-based pay are less likely tooffer explicit incentives. They are also less likely to invest in monitoring devices. We alsofind that firms that offer seniority-based pay are more likely to engage in other humanresource management policies that result in long employment relationships. Overall theseresults suggest that seniority-based pay is indeed used as a motivation device.