Wage premia for newly hired employees

We investigate wage differences between newly hired and incumbent employees in identical functions using detailed personnel data from a large number of banks. We first show in a formal model of job switching that (i) incumbents earn less than new recruits when human capital is mostly general but (ii) the opposite is the case if specific human capital is sufficiently important. In the empirical analysis we find that, on average, new hires earn more than comparable incumbents but – using a novel measure for the importance of specific human capital – these wage premia indeed strongly depend on human capital specificity.