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Promotions, State Dependence and Intrafirm Job Mobility: Evidence From Personnel Records

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  • Pablo Acosta

Abstract

The objective of this paper is to add evidence of job mobility within a firm using personnel records from a single large U.S. corporation, focusing on the determinants of the hazard rates of being promoted to a higher hierarchy level. How to successfully control for unobserved heterogeneity is the goal in this type of analyses, and the approach taken here is to look at the history of the worker, by recognizing state dependence on past promotions. The results show that: (a) the peak of the promotion hazard rates is registered at exactly one year at the current position, even after controlling for observables characteristics and state dependence; (b) males, whites, and more educated workers have a higher probability of being promoted; (c) there is no evidence of “fast tracksâ€: previous promotions do not imply a higher probability of future promotion, even after controlling for tenure at the current job; and (d) recent new hires seems to have an advantage when competing with insiders for a higher position. These last two findings seem to be at odds with the hypotheses of “job-specific†and “firm-specific†human capital, and to indirectly agree with the “Peter Principle†prediction (Lazear, 2004), which suggests that if workers make efforts beyond their capabilities in order to be promoted, after reaching the desired higher position their incentives to be “over-productive†may decline.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 585.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nasm04:585

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Keywords: promotions; personnel economics; job mobility; state dependence;

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  1. Gibbs, Michael, 1995. "Incentive compensation in a corporate hierarchy," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 247-277, April.
  2. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  3. Milgrom, Paul R., 1987. "employment contracts, influence activities and efficient organization design," Department of Economics, Working Paper Series qt6pf6c5j6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November.
  5. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
  6. Edward P. Lazear, 2004. "The Peter Principle: A Theory of Decline," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S141-S163, February.
  7. Lazear, Edward P. & Oyer, Paul, 2004. "Internal and external labor markets: a personnel economics approach," Labour Economics, Elsevier, vol. 11(5), pages 527-554, October.
  8. Christian Belzil & Michael Bognanno, 2004. "The Promotion Dynamics of American Executives," Post-Print halshs-00180126, HAL.
  9. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
  10. Pierre-Andre Chiappori & Bernard Salanie & Julie Valentin, 1999. "Early Starters versus Late Beginners," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 731-760, August.
  11. McCue, Kristin, 1996. "Promotions and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 175-209, April.
  12. Prendergast, Canice, 1993. "A Theory of "Yes Men."," American Economic Review, American Economic Association, vol. 83(4), pages 757-70, September.
  13. Prendergast, Canice & Topel, Robert H, 1996. "Favoritism in Organizations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 958-78, October.
  14. Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
  15. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc.
  16. Dan Bernhardt & David Scoones, 1991. "Promotion: Turnover and Preemptive Wage Offers," Working Papers 817, Queen's University, Department of Economics.
  17. Carmichael, H Lorne, 1988. "Incentives in Academics: Why Is There Tenure?," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 453-72, June.
  18. Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 315-39, April.
  19. Katharine G. Abraham & James L. Medoff, 1983. "Years of Service and Probability of Promotion," NBER Working Papers 1191, National Bureau of Economic Research, Inc.
  20. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 703-36, December.
  21. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 921-55, November.
  22. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
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Cited by:
  1. Francine Blau & Jed DeVaro, 2006. "New Evidence on Gender Differences in Promotion Rates: An Empirical Analysis of a Sample of New Hires," Working Papers 891, Princeton University, Department of Economics, Industrial Relations Section..
  2. Kazuaki Okamura, 2011. "The Signalling Role of Promotion in Japan," Discussion Papers 1112, Graduate School of Economics, Kobe University.

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