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The signaling role of promotions: Further theory and empirical evidence

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  • DeVaro, Jed
  • Waldman, Michael

Abstract

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.

Suggested Citation

  • DeVaro, Jed & Waldman, Michael, 2006. "The signaling role of promotions: Further theory and empirical evidence," MPRA Paper 1550, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:1550
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    More about this item

    Keywords

    signaling theory; promotions; asymmetric information;
    All these keywords.

    JEL classification:

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

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