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A Theory of Wage and Promotion Dynamics in Internal Labor Markets

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  • Robert Gibbons
  • Michael Waldman

Abstract

We attempt to explain employment practices in internal labor markets using models that combine job assignment, on-the-job human-capital acquisition, and learning. We show that a framework that integrates these familiar ideas captures a number of recent empirical findings concerning wage and promotion dynamics in internal labor markets, including the following. First, real wage decreases are a minority of the observations, but are not rare, while demotions are very rare. Second, there is significant serial correlation in wage increases. Third, promotions are associated with particularly large wage increases, but these wage increases are small relative to the difference between average wages across levels of a job ladder. Fourth, on average, workers who receive large wage increases early in their stay at one level of a job ladder are promoted more quickly to the next level. Fifth, individuals promoted from one level of a job ladder to the next come disproportionately, but not exclusively, from the top of the lower job's wage distribution (and arrive disproportionately, but not exclusively, at the bottom of the higher job's wage distribution).

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6454.

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Date of creation: Mar 1998
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Publication status: published as Gibbons, Robert and Michael Waldman. "A Theory Of Wages And Promotion Dynamics Inside Firms," Quarterly Journal of Economics, 1999, v114(4,Nov), 1321-1358.
Handle: RePEc:nbr:nberwo:6454

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Citations

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Cited by:
  1. Sang-Hyop Lee & Sumner La Croix, 2014. "Does Versatility Matter in Match-Play Sports? Evidence from Sumo Wrestling," Working Papers, University of Hawaii at Manoa, Department of Economics 201411, University of Hawaii at Manoa, Department of Economics.
  2. Robert Gibbons & Lawrence F. Katz & Thomas Lemieux & Daniel Parent, 2005. "Comparative Advantage, Learning, and Sectoral Wage Determination," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 23(4), pages 681-724, October.
  3. Ariga, Kenn & Brunello, Giorgio & Ohkusa, Yasushi, 1997. "Fast Track: Is it in the Genes? The Promotion Policy of a Large Japanese Firm," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1622, C.E.P.R. Discussion Papers.
  4. Stephanie Lluis, . "The Role of Comparative Advantage and Learning in Wage Dynamics and Intra-Firm Mobility: Evidence from Germany," Working Papers, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus) 0103, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
  5. LLUIS, Stéphanie, 2001. "Wage Policy of Firms: an Empirical Investigation," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2001-18, Universite de Montreal, Departement de sciences economiques.
  6. Daniel Parent, 2009. "The effect of pay-for-performance contracts on wages," Empirical Economics, Springer, Springer, vol. 36(2), pages 269-295, May.
  7. Lalith Munasinghe, 2005. "A Theory of Wage and Turnover Dynamics," 2005 Meeting Papers, Society for Economic Dynamics 924, Society for Economic Dynamics.

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