Seniority Rules, Worker Mobility and Wages: Evidence from Multi–Country Linked Employer–Employee Data

We construct multi-country employer-employee data to examine the consequences of last-in, first-out rules. We identify the effects by comparing worker exit rates between different units of the same firms operating in Sweden and Finland, two countries that have different seniority rules. We observe a relatively lower exit rate for more senior workers in Sweden in the shrinking firms and among the low-wage workers. These empirical patterns are consistent with last-in, first-out rules in Sweden providing protection from dismissals for the more senior workers among the worker groups to whom the rules are most relevant. Similarly, we observe a steeper seniority-wage profile in Sweden, suggesting that last-in, first-out rules may also be beneficial for more senior workers in terms of compensation.