IDEAS home Printed from https://ideas.repec.org/a/ucp/jlabec/doi10.1086-667814.html
   My bibliography  Save this article

Internal Promotion and External Recruitment: A Theoretical and Empirical Analysis

Author

Listed:
  • Jed DeVaro
  • Hodaka Morita

Abstract

We present a theoretical and empirical analysis of internal promotion versus external recruitment, using a job-assignment model involving competing firms with heterogeneous productivities and two-level job hierarchies with one managerial position. The model predicts that, controlling for the number of managers, increasing the number of lower-level workers is associated with (1) greater internal promotion as opposed to external recruitment, (2) higher profit, and (3) more general training. Empirical analysis of a large cross section of British employers is consistent with these predictions.

Suggested Citation

  • Jed DeVaro & Hodaka Morita, 2013. "Internal Promotion and External Recruitment: A Theoretical and Empirical Analysis," Journal of Labor Economics, University of Chicago Press, vol. 31(2), pages 227-269.
    • Handle: RePEc:ucp:jlabec:doi:10.1086/667814
    DOI: 10.1086/667814
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1086/667814
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: http://dx.doi.org/10.1086/667814
    Download Restriction: Access to the online full text or PDF requires a subscription.
    File URL: https://libkey.io/10.1086/667814?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning and Statistical Discrimination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 313-350.
    3. Jed DeVaro, 2006. "Internal promotion competitions in firms," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 521-542, September.
    4. Paul Milgrom & Sharon Oster, 1987. "Job Discrimination, Market Forces, and the Invisibility Hypothesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 453-476.
    5. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up‐or‐out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325, June.
    6. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    7. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
    8. Alberto Bayo-Moriones & Pedro Ortín-à ngel, 2006. "Internal Promotion versus External Recruitment in Industrial Plants in Spain," ILR Review, Cornell University, ILR School, vol. 59(3), pages 451-470, April.
    9. Jan Zábojník & Dan Bernhardt, 2001. "Corporate Tournaments, Human Capital Acquisition, and the Firm Size—Wage Relation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(3), pages 693-716.
    10. Bruce C. Greenwald, 1986. "Adverse Selection in the Labour Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 325-347.
    11. Chang, Chun & Wang, Yijiang, 1996. "Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 505-519, July.
    12. Dan Bernhardt, 1995. "Strategic Promotion and Compensation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(2), pages 315-339.
    13. Parrino, Robert, 1997. "CEO turnover and outside succession A cross-sectional analysis," Journal of Financial Economics, Elsevier, vol. 46(2), pages 165-197, November.
    14. Agrawal, Anup & Knoeber, Charles R. & Tsoulouhas, Theofanis, 2006. "Are outsiders handicapped in CEO successions?," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 619-644, June.
    15. Easton, George S & Jarrell, Sherry L, 1998. "The Effects of Total Quality Management on Corporate Performance: An Empirical Investigation," The Journal of Business, University of Chicago Press, vol. 71(2), pages 253-307, April.
    16. Oi, Walter Y, 1983. "Heterogeneous Firms and the Organization of Production," Economic Inquiry, Western Economic Association International, vol. 21(2), pages 147-171, April.
    17. Chan, William, 1996. "External Recruitment versus Internal Promotion," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 555-570, October.
    18. Kevin J. Murphy & Ján Zábojník, 2004. "CEO Pay and Appointments: A Market-Based Explanation for Recent Trends," American Economic Review, American Economic Association, vol. 94(2), pages 192-196, May.
    19. John Paul Macduffie, 1995. "Human Resource Bundles and Manufacturing Performance: Organizational Logic and Flexible Production Systems in the World Auto Industry," ILR Review, Cornell University, ILR School, vol. 48(2), pages 197-221, January.
    20. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(3), pages 315-333.
    21. Alberto Bayo-Moriones & Pedro Ortín-Ángel, 2003. "Internal Promotion Versus External Recruitment: Evidence in Industrial Plants," Working Papers 0303, Departament Empresa, Universitat Autònoma de Barcelona, revised Mar 2003.
    22. Limor Golan, 2005. "Counteroffers and Efficiency in Labor Markets with Asymmetric Information," Journal of Labor Economics, University of Chicago Press, vol. 23(2), pages 373-393, April.
    23. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
    24. Hideo Owan, 2004. "Promotion, Turnover, Earnings, and Firm-Sponsored Training," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 955-978, October.
    25. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    26. Casey Ichniowski, 1990. "Human Resource Management Systems and the Performance of U.S. Manufacturing Businesses," NBER Working Papers 3449, National Bureau of Economic Research, Inc.
    27. Uta Schönberg, 2007. "Testing for Asymmetric Employer Learning," Journal of Labor Economics, University of Chicago Press, vol. 25(4), pages 651-691.
    28. William N. Cooke, 1994. "Employee Participation Programs, Group-Based Incentives, and Company Performance: A Union-Nonunion Comparison," ILR Review, Cornell University, ILR School, vol. 47(4), pages 594-609, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    2. Jin, Xin, 2014. "The Signaling Role of Note Being Promoted: Theory and Evidence," MPRA Paper 58484, University Library of Munich, Germany.
    3. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
    4. Jed DeVaro & Suman Ghosh & Cindy Zoghi, 2018. "Job Characteristics and Labor Market Discrimination in Promotions," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 57(3), pages 389-434, July.
    5. Xin Jin, 2014. "The Signaling Role of Not Being Promoted: Theory and Evidence," Working Papers 0314, University of South Florida, Department of Economics.
    6. Jed DeVaro & Antti Kauhanen, 2016. "An “Opposing Responses” Test of Classic versus Market-Based Promotion Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 747-779.
    7. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    8. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up‐or‐out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325, June.
    9. Michael Waldman & Ori Zax, 2016. "An Exploration of the Promotion Signaling Distortion," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(1), pages 119-149.
    10. Dato, Simon & Grunewald, Andreas & Kräkel, Matthias & Müller, Daniel, 2016. "Asymmetric employer information, promotions, and the wage policy of firms," Games and Economic Behavior, Elsevier, vol. 100(C), pages 273-300.
    11. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    12. Jed DeVaro & Antti Kauhanen & Nelli Valmari, 2019. "Internal and External Hiring," ILR Review, Cornell University, ILR School, vol. 72(4), pages 981-1008, August.
    13. DeVaro, Jed, 2011. "Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions," MPRA Paper 35175, University Library of Munich, Germany.
    14. Cassidy, Hugh & DeVaro, Jed & Kauhanen, Antti, 2016. "Promotion signaling, gender, and turnover: New theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 140-166.
    15. Jin, Xin, 2014. "Flattening Firms and Wage Distribution," MPRA Paper 58485, University Library of Munich, Germany.
    16. Prasad, Suraj & Tran, Hien, 2013. "Work practices, incentives for skills, and training," Labour Economics, Elsevier, vol. 23(C), pages 66-76.
    17. Timothy N. Bondtn, 2017. "Internal Labor Markets in Equilibrium," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(1), pages 28-67.
    18. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, December.
    19. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    20. Mario Bossler & Philipp Grunau, 2020. "Asymmetric information in external versus internal promotions," Empirical Economics, Springer, vol. 59(6), pages 2977-2998, December.
    21. Lisa B. Kahn, 2013. "Asymmetric Information between Employers," American Economic Journal: Applied Economics, American Economic Association, vol. 5(4), pages 165-205, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucp:jlabec:doi:10.1086/667814. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Journals Division (email available below). General contact details of provider: https://www.journals.uchicago.edu/JOLE .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.