Wage increases, along with job tenure, are one of the most robust empirical regularities found in labor economics. Several theories explain these empirical regularities, and such theories offer clear empirical predictions for the relation ship between productivity-tenure and wage-tenure profiles. The human capital model, with cost and benefit sharing between workers and employers, predicts a steeper productivity-tenure profile than wage-tenure profile. The matching quality model predicts that the two profiles will overlap. Theories that incorporate information asymmetries between employers and employees predict that the wage-tenure profile will be steeper than productivity-tenure profile as an incentive for workers and to enhance efficiency. This paper estimates productivity-tenure and the wage-tenure profiles by estimating plant-level production functions and wage equations using employer-employee matched data from Japan. These estimations offer a comprehensive test for the relative applicability of the two theories on the wage-tenure profile. Estimation results indicate a steeper wage-tenure profile than productivity-tenure profile and point to the relative importance of the deferred wage payment contract.
