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Why Are Promotions Less Likely in Nonprofit Firms?

  • Jed DeVaro

    (Cornell University)

  • Dana Samuelson

    (Cornell University)

We use data from the Multi-City Study of Urban Inequality (MCSUI) employer survey to document a new empirical finding that workers are less likely to receive promotions in nonprofit firms than in for-profit firms. We propose an incentives-based explanation for this result and offer empirical evidence that is consistent with our hypothesis. At the heart of our explanation is a tradeoff between the incentive-provision and job-assignment roles of promotions. While for-profit firms must rely on promotions to serve both purposes, presumably achieving neither perfectly, we argue that nonprofits have the luxury of using promotions predominantly to achieve optimal job assignment. We conjecture that incentive creation may be less of a concern in nonprofit firms, where workers self-select and are often intrinsically motivated by interest in the firm’s output, thus allowing promotions to be used mainly to achieve efficient job assignments.

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Paper provided by EconWPA in its series Labor and Demography with number 0501010.

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Length: 45 pages
Date of creation: 24 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwpla:0501010
Note: Type of Document - doc; pages: 45
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  1. Holtmann, A G, 1983. "A Theory of Non-Profit Firms," Economica, London School of Economics and Political Science, vol. 50(200), pages 439-49, November.
  2. Michael Waldman, 1983. "Job Assignments, Signalling nad Efficiency," UCLA Economics Working Papers 286, UCLA Department of Economics.
  3. H. Naci Mocan & Erdal Tekin, 2000. "Nonprofit Sector and Part-Time Work: An Analysis of Employer-Employee Matched Data of Child Care Workers," NBER Working Papers 7977, National Bureau of Economic Research, Inc.
  4. Goddeeris, John H, 1988. "Compensating Differentials and Self-selection: An Application to Lawyers," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 411-28, April.
  5. 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.
  6. Preston, Anne E, 1988. "The Effects of Property Rights on Labor Costs of Nonprofit Firms: An Application to the Day Care Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 36(3), pages 337-50, March.
  7. 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.
  8. Baker, G.P. & Jensen, M.C. & Murphy, K.J., 1988. "Compensation And Incentives: Practice Vs. Theory," Papers 88-05, Rochester, Business - Managerial Economics Research Center.
  9. Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
  10. David Easley & Maureen O'Hara, 1983. "The Economic Role of the Nonprofit Firm," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 531-538, Autumn.
  11. McCue, Kristin, 1996. "Promotions and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 175-209, April.
  12. Jed DeVaro, 2005. "Internal Promotion Competitions in Firms," Labor and Demography 0508005, EconWPA.
  13. Daniel Immergluck, 1996. "What employers want: Job prospects for less-educated workers," The Review of Black Political Economy, Springer, vol. 24(4), pages 135-143, June.
  14. 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.
  15. Preston, Anne E, 1989. "The Nonprofit Worker in a For-Profit World," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 438-63, October.
  16. Bernhardt, Dan, 1995. "Strategic Promotion and Compensation," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 315-39, April.
  17. Sherwin Rosen, 1985. "Prizes and Incentives in Elimination Tournaments," NBER Working Papers 1668, National Bureau of Economic Research, Inc.
  18. Weisbrod, Burton A, 1983. "Nonprofit and Proprietary Sector Behavior: Wage Differentials among Lawyers," Journal of Labor Economics, University of Chicago Press, vol. 1(3), pages 246-63, July.
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