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.