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The Promotion Dynamics of American Executives

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Author Info

  • Belzil, Christian

    ()
    (Ecole Polytechnique, Paris)

  • Bognanno, Michael L.

    ()
    (Temple University)

Abstract

We formulate an empirical model of promotion with dynamic self-selection 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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1003.

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Length: 46 pages
Date of creation: Jan 2004
Date of revision:
Publication status: published in: Research in Labor Economics, 2010, 30,189-231
Handle: RePEc:iza:izadps:dp1003

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Keywords: dynamic discrete choices; promotion; personnel economics; random effects;

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References

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Citations

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Cited by:
  1. Kazuaki Okamura, 2011. "The Signalling Role of Promotion in Japan," Discussion Papers 1112, Graduate School of Economics, Kobe University.
  2. Christian Belzil & Michael Bognanno, 2006. "Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives," Working Papers 0606, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  3. 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.
  4. DeVaro, Jed & Waldman, Michael, 2006. "The signaling role of promotions: Further theory and empirical evidence," MPRA Paper 1550, University Library of Munich, Germany.
  5. Bognanno, Michael L. & Melero Martín, Eduardo, 2012. "Promotion Signals, Age and Education," IZA Discussion Papers 6431, Institute for the Study of Labor (IZA).
  6. Pablo Acosta, 2004. "Promotions, State Dependence and Intrafirm Job Mobility: Evidence From Personnel Records," Econometric Society 2004 North American Summer Meetings 585, Econometric Society.
  7. 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.
  8. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets
    [The Handbook of Organizational Economics]
    ," Introductory Chapters, Princeton University Press.
  9. Nordström Skans, Oskar & J. Brösamle, Klaus, 2011. "Paths to higher office: evidence from the Swedish Civil Service," Working Paper Series 2011:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  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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