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An Exploration of the Promotion Signaling Distortion

Author

Listed:
  • Michael Waldman
  • Ori Zax

Abstract

Beginning with Waldman, Michael. 1984a. "Job Assignments, Signalling, and Efficiency," 15 Rand Journal of Economics 255–67, it is well understood that in a world characterized by asymmetric learning promotions can serve as a signal of worker ability which can, in turn, lead to an inefficiently small number of promotions. In this article, we explore two related issues. First, how robust is the finding of a promotion signaling distortion to different ways of modeling the promotion process? Second, what are the various forms that the promotion signaling distortion can take? Our first conclusion is that a promotion signaling distortion exists across a wide range of settings, including some for which earlier work suggests no distortion. Our second conclusion is that, even if there is no inefficiency concerning the number of promotions, there can still be a promotion distortion that takes the form of inefficiencies concerning who is promoted. (JEL M51, J31).

Suggested Citation

  • 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.
    • Handle: RePEc:oup:jleorg:v:32:y:2016:i:1:p:119-149.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewv016
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    Cited by:

    1. Jed DeVaro & Oliver Gürtler, 2020. "Strategic shirking in competitive labor markets: A general model of multi‐task promotion tournaments with employer learning," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(2), pages 335-376, April.
    2. Spencer Bastani & Thomas Giebe & Oliver Gürtler, 2023. "Overconfidence and Gender Equality in the Labor Market," ECONtribute Discussion Papers Series 220, University of Bonn and University of Cologne, Germany.
    3. Waldman, Michael, 2016. "The dual avenues of labor market signaling," Labour Economics, Elsevier, vol. 41(C), pages 120-134.
    4. David Wettstein & Ori Zax, 2018. "Promotion Policies of Workers who Observe their Ability," Economics Bulletin, AccessEcon, vol. 38(4), pages 2509-2514.
    5. Mohrenweiser, Jens & Wydra-Sommaggio, Gaby & Zwick, Thomas, 2015. "Work-related ability as source of information advantages of training employers," ZEW Discussion Papers 15-057, ZEW - Leibniz Centre for European Economic Research.
    6. Jed DeVaro & Suman Ghosh & Cindy Zoghi, 2018. "Job Characteristics and Labor Market Discrimination in Promotions," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 57(3), pages 389-434, July.
    7. Ferreira, Daniel & Nikolowa, Radoslawa, 2023. "Talent discovery and poaching under asymmetric information," LSE Research Online Documents on Economics 116044, London School of Economics and Political Science, LSE Library.
    8. Ferreira, Daniel & Nikolowa, Radoslawa, 2017. "Adverse Selection and Assortative Matching in Labor Markets," CEPR Discussion Papers 11869, C.E.P.R. Discussion Papers.
    9. 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.
    10. Ori Zax, 2017. "Promotion Policies at Different Firms," Economics Bulletin, AccessEcon, vol. 37(2), pages 1045-1054.
    11. Daniel Ferreira & Radoslawa Nikolowa, 2023. "Talent Discovery and Poaching Under Asymmetric Information," The Economic Journal, Royal Economic Society, vol. 133(649), pages 201-234.
    12. Jens MohrenweiserBy & Gabriele Wydra-Somaggio & Thomas Zwick, 2020. "Information advantages of training employers despite credible training certificates," Oxford Economic Papers, Oxford University Press, vol. 72(3), pages 651-671.
    13. Simon Dato & Andreas Grunewald & Matthias Kräkel, 2021. "Worker visibility and firms' retention policies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(1), pages 168-202, February.
    14. Bastani, Spencer & Giebe, Thomas & Guertler, Oliver, 2024. "Overconfidence and gender gaps in career outcomes: insights from a promotion signaling model," Working Paper Series 2024:21, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    15. Ori Zax, 2020. "Human capital acquisition as a competitive response to the promotion distortion," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 496-509, July.
    16. Chen Cohen & Ori Zax, 2022. "Human capital acquisition as a signaling device in promotion competition," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 550-566, May.
    17. Ekinci, Emre, 2022. "Employee entrepreneurship and signaling role of corporate venturing decisions," Labour Economics, Elsevier, vol. 79(C).

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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