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The Promotion Dynamics of American Executives

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  • Christian Belzil

    ()
    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

  • Michael Bognanno

    (Department of economics - Temple University)

Abstract

We formulate an empirical model of promotion with dynamic selfselection where the current promotion probability depends on the hierarchical level in the firm, individual human capital, unobserved (to the econometrician) individual specific attributes, time varying firm specific variables (firm size and profits) as well as endogenous past promotion histories. We examine the causal effect of previous promotion histories (as measured by realized speed of promotion) on future promotion outcomes. The model is fit on an 8 year panel of promotion histories of 30,000 American executives employed in more than 380 different firms. The stochastic process generating promotions is weakly correlated with standard human capital endowment variables (age, schooling and tenure). It may be viewed as a series of promotion probabilities which become smaller as an individual moves up in the hierarchy and is primarily explained by individual (or firm) specific factors other than measured human capital. We also find that, conditional on unobservables, the promotion probability is only mildly enhanced, on average, by the speed of promotion achieved in the past (a structural fast track effect). However, we find the existence of a relatively high cross-sectional dispersion in the effect of past promotion histories and we are able to provide an explanation for this relatively high dispersion. In general, the magnitude of the individual specific effect of achieved speed of promotion is inversely related to accumulated human capital (schooling and tenure). We believe that these findings are consistent with the hypothesis that the signaling aspect of past promotions is stronger for those who are less educated and stronger for those who are relatively new in a firm. We also find that a negative correlation between current promotion and past speed of promotion cannot be ruled out for a portion of the population, and we are able to relate this finding to the “Peter Principle”.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00180126.

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Date of creation: Apr 2004
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Handle: RePEc:hal:journl:halshs-00180126

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Related research

Keywords: dynamic discrete choices; personnel economics; promotions;

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References

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  1. Ariga, Kenn & Ohkusa, Yasushi & Brunello, Giorgio, 1999. "Fast track: is it in the genes? The promotion policy of a large Japanese firm," Journal of Economic Behavior & Organization, Elsevier, vol. 38(4), pages 385-402, April.
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Citations

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Cited by:
  1. Belzil, Christian & Bognanno, Michael L., 2005. "Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives," IZA Discussion Papers 1630, Institute for the Study of Labor (IZA).
  2. Brösamle, Klaus J & Nordström Skans, Oskar, 2011. "Paths to higher office: evidence from the Swedish Civil Service," Working Paper Series, Center for Labor Studies 2011:17, Uppsala University, Department of Economics.
  3. Waldman, Michael, 2007. "Theory and evidence in internal labor markets," MPRA Paper 5113, University Library of Munich, Germany.
  4. Pema, Elda & Mehay, Stephen, 2010. "The role of job assignment and human capital endowments in explaining gender differences in job performance and promotion," Labour Economics, Elsevier, vol. 17(6), pages 998-1009, December.
  5. Christian Belzil & Michael Bognanno, 2008. "Promotions, Demotions, Halo Effects, and the Earnings Dynamics of American Executives," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 287-310, 04.
  6. 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.
  7. Kazuaki Okamura, 2011. "The Signalling Role of Promotion in Japan," Discussion Papers 1112, Graduate School of Economics, Kobe University.
  8. Michael Bognanno & Eduardo Melero, 2012. "Promotion Signals, Age and Education," DETU Working Papers 1205, Department of Economics, Temple University.
  9. Pablo Acosta, 2004. "Promotions, State Dependence and Intrafirm Job Mobility: Evidence From Personnel Records," Econometric Society 2004 North American Summer Meetings 585, Econometric Society.
  10. Acosta, Pablo, 2010. "Promotion dynamics the Peter Principle: Incumbents vs. external hires," Labour Economics, Elsevier, vol. 17(6), pages 975-986, December.
  11. Elena Pastorino, 2012. "Careers in firms: estimating a model of learning, job assignment, and human capital aquisition," Staff Report 469, Federal Reserve Bank of Minneapolis.

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