Promotion Signals, Experience, and Education

22 Pages Posted: 20 Jan 2016

See all articles by Michael L. Bognanno

Michael L. Bognanno

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

Eduardo Melero

Universidad Carlos III de Madrid - Department of Business Administration

Date Written: Spring 2016

Abstract

This paper uses a nation‐wide representative survey of employees to examine 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 induce a larger positive update of the assessment of their ability than the promotion of more educated workers. Promotions of less experienced workers, with less known about their abilities, should also result in strong signaling effects. We obtain regression results consistent with our hypotheses, although the size and significance of the estimates hinge on the promotion definition. Inexperienced workers gain more from promotions that entail new managerial responsibilities, whereas less educated workers gain more from nonmanagerial promotions. This sensitivity to the definition of promotion suggests that promotions reveal information on different dimensions of ability for different types of workers.

Suggested Citation

Bognanno, Michael L. and Melero, Eduardo, Promotion Signals, Experience, and Education (Spring 2016). Journal of Economics & Management Strategy, Vol. 25, Issue 1, pp. 111-132, 2016, Available at SSRN: https://ssrn.com/abstract=2718661 or http://dx.doi.org/10.1111/jems.12132

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

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

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