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Internal Labor Markets in Equilibrium

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  • Timothy N. Bondtn

Abstract

Traditional models of promotion have difficulty explaining why many firms do not favor internal employees for advancement. I develop a new model to explain this phenomenon. My model generates an equilibrium where some, but not all, ex ante identical firms recruit strictly internally. These firms employ higher quality entry-level workers, since they hire supervisors exclusively from their lower ranks. The scarcity of high-quality workers limits the use of this strategy. I derive several testable predictions on wage-tenure profile differences across firms with varying recruitment practices and confirm these predictions using matched employer–employee data from the United Kingdom. (JEL M50, J31)

Suggested Citation

  • Timothy N. Bondtn, 2017. "Internal Labor Markets in Equilibrium," Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(1), pages 28-67.
  • Handle: RePEc:oup:jleorg:v:33:y:2017:i:1:p:28-67.
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    File URL: http://hdl.handle.net/10.1093/jleo/eww019
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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