Promotion dynamics the Peter Principle: Incumbents vs. external hires
The "Peter Principle" (Peter and Hull, 1969; Fairburn and Malcomson, 2001; Lazear, 2004) suggests that individuals are "promoted to their level of incompetence". A corollary of the "Peter Principle" prediction is that external hires should have an advantage when competing with incumbents for a higher position. Using five years of personnel records from a single large U.S. corporation, this paper contributes to the literature on internal labor markets and intra-firm job mobility by testing this prediction for career advancement. Results support the idea of differences in promotion dynamics among incumbents and external hires, since past career advancement within the firm result in a lower probability of subsequent promotion, even after controlling for workers' heterogeneity and tenure on the current job. The advantage for external hires does not hold once other job changes (lateral transfers, task reorganizations) are considered, highlighting that promotions are a very different job placement mechanism than transfers. Overall, the evidence points out towards declining performance following promotion, as opposed to alternative competing hypothesis of probation placement or "handicapping" external candidates.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christian Belzil & Michael Bognanno, 2004.
"The Promotion Dynamics of American Executives,"
0404, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
- Belzil, Christian & Bognanno, Michael L., 2004. "The Promotion Dynamics of American Executives," IZA Discussion Papers 1003, Institute for the Study of Labor (IZA).
- Christian Belzil & Michael Bognanno, 2004. "The Promotion Dynamics of American Executives," CIRANO Working Papers 2004s-05, CIRANO.
- Christian Belzil & Michael Bognanno, 2004. "The Promotion Dynamics of American Executives," Post-Print halshs-00180126, HAL.
- Thomas Lemieux & W. Bentley Macleod & Daniel Parent, 2006.
"Performance Pay And Wage Inequality,"
Departmental Working Papers
2006-08, McGill University, Department of Economics.
- Lemieux, Thomas & MacLeod, W. Bentley & Parent, Daniel, 2007. "Performance Pay and Wage Inequality," IZA Discussion Papers 2850, Institute for the Study of Labor (IZA).
- Thomas Lemieux & W. Bentley MacLeod & Daniel Parent, 2007. "Performance Pay and Wage Inequality," NBER Working Papers 13128, National Bureau of Economic Research, Inc.
- Fairburn, J.A. & Malcomson, J.M., 1995.
"Performance, Promotion, and the Peter Principle,"
UFAE and IAE Working Papers
304.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- James Malcomson & James A. Fairburn, 2000. "Performance, Promotion, and the Peter Principle," Economics Series Working Papers 26, University of Oxford, Department of Economics.
- Fairburn, J.A. & Malcomson, J.M., 2000. "Performance, Promotion, and the Peter Principle," Economics Series Working Papers 9926, University of Oxford, Department of Economics.
- Jovanovic, Boyan, 1979.
"Job Matching and the Theory of Turnover,"
Journal of Political Economy,
University of Chicago Press, vol. 87(5), pages 972-990, October.
- James L. Medoff & Katharine G. Abraham, 1980.
"Experience, Performance, and Earnings,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 95(4), pages 703-736.
- Sherwin Rosen, 1985.
"Prizes and Incentives in Elimination Tournaments,"
NBER Working Papers
1668, National Bureau of Economic Research, Inc.
- 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.
- 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 1622, C.E.P.R. Discussion Papers.
- Agrawal, Anup & Knoeber, Charles R. & Tsoulouhas, Theofanis, 2006.
"Are outsiders handicapped in CEO successions?,"
Journal of Corporate Finance,
Elsevier, vol. 12(3), pages 619-644, June.
- James J. Heckman, 1981. "Heterogeneity and State Dependence," NBER Chapters, in: Studies in Labor Markets, pages 91-140 National Bureau of Economic Research, Inc.
- Chan, William, 1996. "External Recruitment versus Internal Promotion," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 555-570, October.
- Edward P. Lazear, 2004. "The Peter Principle: A Theory of Decline," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 141-163, February.
- Michael Gibbs & Wallace Hendricks, 2004. "Do Formal Salary Systems Really Matter?," ILR Review, Cornell University, ILR School, vol. 58(1), pages 71-93, October.
- McCue, Kristin, 1996. "Promotions and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 175-209, April.
- George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 881-919.
- William Chan, 2006. "External Recruitment and Intrafirm Mobility," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 169-184, January.
- Robert Gibbons & Michael Waldman, 1999. "A Theory of Wage and Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1321-1358.
- Pierre-Andre Chiappori & Bernard Salanie & Julie Valentin, 1999. "Early Starters versus Late Beginners," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 731-760, August.
When requesting a correction, please mention this item's handle: RePEc:eee:labeco:v:17:y:2010:i:6:p:975-986. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.