Promotion Signals, Age and Education

24 Pages Posted: 31 Mar 2012

See all articles by Michael L. Bognanno

Michael L. Bognanno

Temple University - Department of Economics; IZA Institute of Labor Economics

Eduardo Melero

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; IZA Institute of Labor Economics

Abstract

This paper examines whether more informative job promotions carry larger wage increases. In job assignment models with asymmetric information, unexpected promotions send a signal to the external labor market to revise upward their assessment of a worker's ability. The employing firm must then increase wages to prevent the worker from being bid away. Less educated workers are assumed to come from a group with lower average ability. Their promotion is hypothesized to signal a larger positive assessment of their ability than for more highly educated workers for whom promotion is expected. Promotions for younger workers, with less known about their abilities, should also result in strong signaling effects. We find results in accordance with our hypotheses regarding the effect of both age and education on the gains to promotion. However, the statistical significance of the estimates hinges on the promotion definition. Younger workers receive statistically significantly higher wage increases upon promotion only when promotion is defined by the attainment of managerial responsibilities not previously held. Less educated workers obtain statistically significantly larger wage increases upon promotion at a weak level of significance (10%) across definitions of promotion but at a high level of significance (5%) only when the subjective definition of promotion is used. We interpret the sensitivity to the definition of promotion to suggest that promotions may be heterogeneous in the information they reveal about the employee in way that depends on the characteristics of the employee.

Keywords: promotion, signaling, internal labor markets

JEL Classification: J3

Suggested Citation

Bognanno, Michael L. and Melero, Eduardo, Promotion Signals, Age and Education. IZA Discussion Paper No. 6431, Available at SSRN: https://ssrn.com/abstract=2031999

Michael L. Bognanno (Contact Author)

Temple University - Department of Economics ( email )

Philadelphia, PA 19122
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Eduardo Melero

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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