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Internal labour markets: a case study

  • Lima, Francisco

We select one firm from a large data set of firms and study its internal economics. First we prove that the information available allows us to inspect the personnel policies of the firm. Furthermore, this fact allows moving from the case study to more comprehensive studies in personnel economics using institutional surveys. The analysis also shows the patterns of workers' promotions and the differences in the characteristics of insider versus outsider workers. The decision to promote is analyzed. The hierarchic design directly influences the wage policy. Wages are determined to a great extent by the layers of the hierarchy. There are wage premiums upon promotion, even if the worker does not change his place in the organization. When the promoted worker moves up in the hierarchy he comes from the top of the wage distribution at the old job and goes to the bottom of it in the new job. We present evidence on workers' exit and entry to the bottom of the wage distribution, especially in the lower part of the hierarchy.

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Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp378.

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Length: 41 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:unl:unlfep:wp378
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  1. Ricart i Costa, Joan E, 1988. "Managerial Task Assignment and Promotions," Econometrica, Econometric Society, vol. 56(2), pages 449-66, March.
  2. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1993. "Hierarchies and compensation: A case study," European Economic Review, Elsevier, vol. 37(2-3), pages 366-378, April.
  3. Edward P. Lazear, 1999. "Personnel Economics: Past Lessons and Future Directions," NBER Working Papers 6957, National Bureau of Economic Research, Inc.
  4. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  5. Paul R. Milgrom, 1984. "Job Discrimination, Market Forces and the Invisibility Hypothesis," Cowles Foundation Discussion Papers 708R, Cowles Foundation for Research in Economics, Yale University, revised 1985.
  6. Ariga, Kenn & Brunello, Giorgio & Ohkusa, Yasushi, 1997. "Fast Track: Is it in the Genes? The Promotion Policy of a Large Japanese Firm," CEPR Discussion Papers 1622, C.E.P.R. Discussion Papers.
  7. Medoff, James L & Abraham, Katharine G, 1980. "Experience, Performance, and Earnings," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 703-36, December.
  8. Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 315-39, April.
  9. Chan, William, 1996. "External Recruitment versus Internal Promotion," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 555-70, October.
  10. McCue, Kristin, 1996. "Promotions and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 175-209, April.
  11. Manove, Michael, 1997. "Job Responsibility, Pay and Promotion," Economic Journal, Royal Economic Society, vol. 107(440), pages 85-103, January.
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