Internal Labor Markets in Equilibrium

Bond, Timothy N. (2011): Internal Labor Markets in Equilibrium.

Abstract

Traditional models of promotion have difficulty explaining why many firms do not favor internal employees for advancement. I develop a new model to explain this phenomenon. My model generates an equilibrium where some, but not all, ex ante identical firms promise to promote internally. These firms employ higher quality entry-level workers, since they hire supervisors exclusively from their lower ranks. The scarcity of high-quality workers limits the use of this strategy. I derive several testable predictions on wage-tenure profile differences across firms with varying promotion practices and confirm these predictions using matched employer-employee data from the United Kingdom.

• Item Type: MPRA Paper
• Language: English
• Keywords: promotion; internal labor markets; personnel
• Subjects: J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M5 - Personnel Economics > M51 - Firm Employment Decisions ; Promotions

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