Using data on U.S. engineers and the position of engineering jobs within firms, this paper estimates a model of hierarchies within firms. The model extends Rosen's (1982) model of recursive production to two skills and multiple hierarchy levels. The model generates an empirical model that is nested within a general Roy (1951) model of self-selection. Maximum likelihood estimates of the parameters of the production technology and the skill-experience profiles are estimated. The results suggest that approximately two-thirds of changes in employment shares across hierarchy levels across time are explained by demographic shifts in the stock of engineering skills. Most of the returns to experience and to assignment to higher hierarchy levels within firms are caused by skill accumulation and self-selection rather than technological differences across hierarchy levels.

Christopher Ferrall is an assistant professor of economics at Queen's University. He is grateful to Charles Beach for providing the CPS data and, for helpful comments and discussions on earlier drafts. Yugi Genda, Shulamit Kahn, Guy Lacroix, Aloysius Siow, Tony Smith, Scott Thompson, and seminar participants at several conferences and universities. Computations were performed using a grant from the Pittsburgh Supercomputer Center. Support from the Advisory Research Council at Queen's is gratefully acknowledged. The data and programs used in this paper are available from the author at Department of Economics, Queen's University, Kingston, Ontario, Canada K7L 3N6, or ferrall@qed.econ.queensu.ca.

© 2002 by the Board of Regents of the University of Wisconsin System

US ISSN 0022-166X

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