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The signaling role of promotions: Further theory and empirical evidence

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  • DeVaro, Jed
  • Waldman, Michael

Abstract

An extensive theoretical literature has developed that investigates the role of promotions as a signal of worker ability. There have been no tests, however, of the empirical validity of this idea. In this paper we develop the theory in a manner that allows us to generate testable predictions, and then investigate the validity of these predictions using a longitudinal data set that contains detailed information concerning the internal-labor-market history of a medium sized firm in the financial services industry. Our results support the notion that signaling is both a statistically significant and economically significant factor in promotion decisions. The paper also contributes to the extensive literature on the role of education as a labor-market signal.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1550.

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Date of creation: Dec 2006
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Handle: RePEc:pra:mprapa:1550

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Keywords: signaling theory; promotions; asymmetric information;

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