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Promotion Signals, Age and Education

Author

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  • Bognanno, Michael L.

    () (Temple University)

  • Melero Martín, Eduardo

    () (Universidad Carlos III de Madrid)

Abstract

This paper examines whether more informative job promotions carry larger wage increases. In job assignment models with asymmetric information, unexpected promotions send a signal to the external labor market to revise upward their assessment of a worker's ability. The employing firm must then increase wages to prevent the worker from being bid away. Less educated workers are assumed to come from a group with lower average ability. Their promotion is hypothesized to signal a larger positive assessment of their ability than for more highly educated workers for whom promotion is expected. Promotions for younger workers, with less known about their abilities, should also result in strong signaling effects. We find results in accordance with our hypotheses regarding the effect of both age and education on the gains to promotion. However, the statistical significance of the estimates hinges on the promotion definition. Younger workers receive statistically significantly higher wage increases upon promotion only when promotion is defined by the attainment of managerial responsibilities not previously held. Less educated workers obtain statistically significantly larger wage increases upon promotion at a weak level of significance (10%) across definitions of promotion but at a high level of significance (5%) only when the subjective definition of promotion is used. We interpret the sensitivity to the definition of promotion to suggest that promotions may be heterogeneous in the information they reveal about the employee in way that depends on the characteristics of the employee.

Suggested Citation

  • Bognanno, Michael L. & Melero Martín, Eduardo, 2012. "Promotion Signals, Age and Education," IZA Discussion Papers 6431, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp6431
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    References listed on IDEAS

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    1. Dan Bernhardt, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 315-339.
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    6. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
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    12. McCue, Kristin, 1996. "Promotions and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 175-209, April.
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    Cited by:

    1. 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 - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. Belzil, Christian & Bognanno, Michael L. & Poinas, François, 2012. "Promotion Determinants in Corporate Hierarchies: An Examination of Fast Tracks and Functional Area," IZA Discussion Papers 6948, Institute for the Study of Labor (IZA).
    3. Marc Gürtler & Oliver Gürtler, 2015. "The Optimality of Heterogeneous Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 33(4), pages 1007-1042.
    4. Michael Waldman & Ori Zax, 2016. "An Exploration of the Promotion Signaling Distortion," Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(1), pages 119-149.
    5. Jens Mohrenweiser & Gabriele Wydra-Somaggio & Thomas Zwick, 2017. "Information Advantages of Training Employers Despite Credible Training Certificates," Economics of Education Working Paper Series 0121, University of Zurich, Department of Business Administration (IBW), revised Apr 2017.
    6. Jed DeVaro & Antti Kauhanen, 2016. "An “Opposing Responses” Test of Classic versus Market-Based Promotion Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 747-779.

    More about this item

    Keywords

    promotion; signaling; internal labor markets;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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