Asymmetric information in external versus internal promotions

Employers have an incentive to fill managerial positions with the most able candidates, and they face a central choice of promoting from inside or outside the firm. With respect to the observability of the candidates’ quality, individual and job-specific characteristics might exert differential influences on these two channels of promotion. We conduct a close comparison of co-workers within occupation–workplace cells in multinomial logit regressions and thereby assess the drivers of external and internal promotions. The results demonstrate that overtime hours, which are observed only by the current employer, are more important for internal promotions, whereas formal educational degrees are more relevant for promotions across establishments. Moreover, the promotion gap for women and foreigners is large and particularly pronounced for promotions across workplaces. However, the disadvantage of women decreases when they work overtime hours.