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Promotion Policies at Different Firms

Author

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  • Ori Zax

    (Tel Hai College, Department of Economics and Management)

Abstract

A large body of research shows that in an economy characterized by asymmetric learning, promoting a worker serves as a signal of his ability. In the present paper, we show that the signals generated by promotion by two firms differ if those firms have different production functions since those firms promote workers of different abilities. Hence, if the production function differs across sectors then workers have different wages following a promotion, different probabilities of being promoted and different wages prior to the promotion stage in each sector. These differences do not arise in an economy without asymmetric information.

Suggested Citation

  • Ori Zax, 2017. "Promotion Policies at Different Firms," Economics Bulletin, AccessEcon, vol. 37(2), pages 1045-1054.
    • Handle: RePEc:ebl:ecbull:eb-17-00179
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    File URL: http://www.accessecon.com/Pubs/EB/2017/Volume37/EB-17-V37-I2-P91.pdf
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    References listed on IDEAS

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    1. repec:zbw:ifwedp:201242 is not listed on IDEAS
    2. Robert Gibbons & Lawrence Katz, 1992. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 515-535.
    3. Neumuller, Seth, 2015. "Inter-industry wage differentials revisited: Wage volatility and the option value of mobility," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 38-54.
    4. 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, vol. 23(4), pages 681-724, October.
    5. Dato, Simon & Grunewald, Andreas & Kräkel, Matthias & Müller, Daniel, 2016. "Asymmetric employer information, promotions, and the wage policy of firms," Games and Economic Behavior, Elsevier, vol. 100(C), pages 273-300.
    6. Waldman, Michael, 1990. "Up-or-Out Contracts: A Signaling Perspective," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 230-250, April.
    7. James Heckman & Jose Scheinkman, 1987. "The Importance of Bundling in a Gorman-Lancaster Model of Earnings," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 54(2), pages 243-255.
    8. 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.
    9. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    10. Michael Waldman & Ori Zax, 2016. "An Exploration of the Promotion Signaling Distortion," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(1), pages 119-149.
    11. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    12. Ori Zax, 2012. "Promotion Policy and Firm Size," Economics Bulletin, AccessEcon, vol. 32(4), pages 3347-3356.
    13. Dan Bernhardt, 1995. "Strategic Promotion and Compensation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(2), pages 315-339.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. David Wettstein & Ori Zax, 2018. "Promotion Policies of Workers who Observe their Ability," Economics Bulletin, AccessEcon, vol. 38(4), pages 2509-2514.

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    More about this item

    Keywords

    Promotions; job ladders; inter-industry wage differentials.;
    All these keywords.

    JEL classification:

    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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