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Wage Differences between Incumbents and External Candidates


  • W.H.J. Hassink
  • G. Russo


This paper compares the hourly wage of employees who change jobs within their firm with that of workers who are hired from other employers in the external labor market. We use a Dutch data set of about 45 thousand workers who are employed at 1,838 firms over in the years 1997 and 1998. We have the following empirical results: Workers who moved internally are in the higher segments of the wage distribution, relative to externally-hired workers. The difference in wage narrows a bit when we relate the workers with internal mobility to the hirees who were previously employed with another firm (job-to-job movement). We find that the difference in wage between internal candidates and external candidates from other employers disappears if we correct for the workers’ observable characteristics. The empirical results indicate that on average there is no substantial wage difference between workers who make a transition between jobs within their firm and comparable workers who make a transition between firms in the external labor market.

Suggested Citation

  • W.H.J. Hassink & G. Russo, 2003. "Wage Differences between Incumbents and External Candidates," Working Papers 03-03, Utrecht School of Economics.
  • Handle: RePEc:use:tkiwps:0303

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    References listed on IDEAS

    1. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 921-955.
    2. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    3. Chan, William, 1996. "External Recruitment versus Internal Promotion," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 555-570, October.
    4. Bruce C. Greenwald, 1986. "Adverse Selection in the Labour Market," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 325-347.
    5. Simon Burgess & Julia Lane & David Stevens, 1998. "Hiring Risky Workers: Some Evidence," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 669-676, December.
    6. Edward P. Lazear, 1995. "Hiring Risky Workers," NBER Working Papers 5334, National Bureau of Economic Research, Inc.
    7. Treble, John & van Gameren, Edwin & Bridges, Sarah & Barmby, Tim, 2001. "The internal economics of the firm: further evidence from personnel data," Labour Economics, Elsevier, vol. 8(5), pages 531-552, December.
    8. Robert Gibbons & Michael Waldman, 1999. "A Theory of Wage and Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1321-1358.
    9. Edward P. Lazear, 1991. "Labor Economics and the Psychology of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 89-110, Spring.
    10. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 881-919.
    11. Hassink, Wolter H. J., 1996. "An empirical note on job turnover and internal mobility of workers," Economics Letters, Elsevier, vol. 51(3), pages 339-344, June.
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