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Internal Promotion Competitions in Firms

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  • Jed DeVaro

Abstract

Using a sample of skilled workers from a cross section of establishments in four metropolitan areas of the United States, I present evidence suggesting that promotions are determined by relative worker performance. I then estimate a structural model of promotion tournaments (treating as endogenous promotions, worker performance, and the wage spread from promotion) that simultaneously accounts for worker and firm behavior and how the interaction of these behaviors gives rise to promotions. The results are consistent with the predictions of tournament theory that employers set wage spreads to induce optimal performance levels, and that workers are motivated by larger spreads.

Suggested Citation

  • Jed DeVaro, 2006. "Internal Promotion Competitions in Firms," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 521-542, Autumn.
    • Handle: RePEc:rje:randje:v:37:y:2006:3:p:521-542
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    Citations

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    Cited by:

    1. Edward P. Lazear & Kathryn L. Shaw, 2007. "Personnel Economics: The Economist's View of Human Resources," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 91-114, Fall.
    2. Ján Zábojník, 2012. "Promotion tournaments in market equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(1), pages 213-240, September.
    3. Josse Delfgaauw & Robert Dur & Arjan Non & Willem Verbeke, 2015. "The Effects of Prize Spread and Noise in Elimination Tournaments: A Natural Field Experiment," Journal of Labor Economics, University of Chicago Press, vol. 33(3), pages 521-569.
    4. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    5. Geir H. Bjertnæs, 2012. "Promotion rat race and public policy," Discussion Papers 686, Statistics Norway, Research Department.
    6. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    7. Marc Gürtler & Oliver Gürtler, 2015. "The Optimality of Heterogeneous Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 33(4), pages 1007-1042.
    8. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, April.
    9. Geir Bjertnaes, 2012. "Promotion Rat Race and Public Policy," CESifo Working Paper Series 3781, CESifo.
    10. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    11. Claussen, Jörg & Grohsjean, Thorsten & Luger, Johannes & Probst, Gilbert, 2014. "Talent management and career development: What it takes to get promoted," Journal of World Business, Elsevier, vol. 49(2), pages 236-244.
    12. Agranov, Marina & Tergiman, Chloe, 2013. "Incentives and compensation schemes: An experimental study," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 238-247.
    13. Jan Zabojnik, 2008. "Promotion Tournaments In Market Equilibrium," Working Paper 1193, Economics Department, Queen's University.

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