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The signaling role of promotions: Further theory and empirical evidence

  • DeVaro, Jed
  • Waldman, Michael

An extensive theoretical literature has developed that investigates the role of promotions as a signal of worker ability. There have been no tests, however, of the empirical validity of this idea. In this paper we develop the theory in a manner that allows us to generate testable predictions, and then investigate the validity of these predictions using a longitudinal data set that contains detailed information concerning the internal-labor-market history of a medium sized firm in the financial services industry. Our results support the notion that signaling is both a statistically significant and economically significant factor in promotion decisions. The paper also contributes to the extensive literature on the role of education as a labor-market signal.

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File URL: https://mpra.ub.uni-muenchen.de/1550/1/MPRA_paper_1550.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1550.

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Date of creation: Dec 2006
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Handle: RePEc:pra:mprapa:1550
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  1. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
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  11. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
  12. Milgrom, Paul & Oster, Sharon, 1987. "Job Discrimination, Market Forces, and the Invisibility Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 453-76, August.
  13. Milton Harris & Bengt Holmstrom, 1981. "A Theory of Wage Dynamics," Discussion Papers 488, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Margaret A. MEYER, 1992. "Biased Contests and Moral Hazard: Implications for Career Profiles," Annales d'Economie et de Statistique, ENSAE, issue 25-26, pages 165-187.
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  18. Joseph G. Altonji & Charles R. Pierret, 1997. "Employer Learning and Statistical Discrimination," NBER Working Papers 6279, National Bureau of Economic Research, Inc.
  19. Ishida, Junichiro, 2004. "Signaling and strategically delayed promotion," Labour Economics, Elsevier, vol. 11(6), pages 687-700, December.
  20. Steffen Habermalz, 2006. "More Detail on the Pattern of Returns to Educational Signals," Southern Economic Journal, Southern Economic Association, vol. 73(1), pages 125–135, July.
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  33. Meyer, Margaret A, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 15-41, January.
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  41. Hideo Owan, 2004. "Promotion, Turnover, Earnings, and Firm-Sponsored Training," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 955-978, October.
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