The Impact of Job Similarity Along the Career Path on the Firm's Promotion Strategy

Abstract

Firms use job promotions to incentivize hard work from low-level employees and to sort employees according to their skills. Since these two functions are often in conflict, a firm's promotion strategy tries to balance them. Our model extends prior research by identifying job similarity between current and future job as a driver of a firm's promotion strategy. Depending on organizational and labor market characteristics, similar jobs can increase or decrease the chances for careers within a single firm. The results help to explain why firms with different structures or from different industries use different promotion strategies.

Keywords: Promotion, Job Similarity, Organizational Design

JEL Classification: J31, M51, D86