Promotion Signaling and Signal Jamming: An Analysis of Job Title Inflation

Starting with Waldman (1984), it has become widely understood that an important role of promotions in labor markets is that promotions serve as signals of high worker ability. In this paper we explore the common and growing practice called job title inflation which serves a signal jamming role that reduces the signaling value of promotions. We first explore a two-period model and show how job title inflation can arise in equilibrium and increase social welfare both because workers directly value impressive sounding job titles and because the practice reduces job assignment inefficiencies due to signaling. We then introduce into the model an investment choice for young workers concerning human capital accumulation and show that job title inflation can decrease rather than increase welfare in that case. That is, when promotions and the associated wage increases serve as an important incentive for investing in human capital, the use of job title inflation can persist even though the practice lowers both overall efficiency and expected worker utility. We then consider three extensions: (i) a setting characterized by worker turnover; (ii) a setting characterized by a wage transparency law; and (iii) a setting characterized by heterogeneous worker visibility. Also, in addition to showing how job title inflation can arise as an equilibrium phenomenon that can either raise or lower welfare, we discuss the extent to which our theoretical analysis matches evidence concerning the use of job title inflation in real-world labor markets.