Purpose – The purpose of this paper is to investigate three hypotheses for the existence of a wage premium between incumbents and employees who are hired from other employers in the external labour market. Design/methodology/approach – The paper presents estimates of wage equations for a sample of externally hired workers and internally promoted employees. It uses an employer-employee matched data set of Dutch firms from all economic sectors (1998). It controls for various observed characteristics of the firm, the worker and the job. Findings – The estimates reject the hypothesis that firms rely more on observable characteristics for wage formation of external candidates. Nor do the estimates favor the prediction that there is a wage premium due to the option value of risky employees. Finally, employees who are recruited internally have on average a 15 percent higher wage (net of tenure) than comparable employees who are hired from other employers. Research limitations/implications – It was found that there was a limited possibility of identifying risky employees. Practical implications – Firms do not reward risky employees; the incumbents seem to be of better quality than the external hirees. Originality/value – Here the focus is on hirees who were previously employed elsewhere. Usually, a broader definition of external hiring is used.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 29 (2008) Issue (Month): 8 (November) Pages: 715-730 Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF