The Promotion Dynamics of American Executives

IZA Discussion Paper No. 1003

GATE Working Paper No. 04-04

46 Pages Posted: 10 Feb 2004

See all articles by Christian Belzil

Christian Belzil

Ecole Polytechnique, Paris - Department of Economic Sciences; National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); Institute for the Study of Labor (IZA); Center for Interuniversity Research and Analysis on Organization (CIRANO)

Michael L. Bognanno

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

Date Written: January 2004

Abstract

We formulate an empirical model of promotion with dynamic self-selection where the current promotion probability depends on the hierarchical level in the firm, individual human capital, unobserved (to the econometrician) individual specific attributes, time varying firm specific variables (firm size and profits) as well as endogenous past promotion histories. We examine the causal effect of previous promotion histories (as measured by realized speed of promotion) on future promotion outcomes. The model is fit on an 8 year panel of promotion histories of 30,000 American executives employed in more than 380 different firms. The stochastic process generating promotions is weakly correlated with standard human capital endowment variables (age, schooling and tenure). It may be viewed as a series of promotion probabilities which become smaller as an individual moves up in the hierarchy and is primarily explained by individual (or firm) specific factors other than measured human capital.

We also find that, conditional on unobservables, the promotion probability is only mildly enhanced, on average, by the speed of promotion achieved in the past (a structural fast track effect). However, we find the existence of a relatively high cross-sectional dispersion in the effect of past promotion histories and we are able to provide an explanation for this relatively high dispersion. In general, the magnitude of the individual specific effect of achieved speed of promotion is inversely related to accumulated human capital (schooling and tenure). We believe that these findings are consistent with the hypothesis that the signaling aspect of past promotions is stronger for those who are less educated and stronger for those who are relatively new in a firm. We also find that a negative correlation between current promotion and past speed of promotion cannot be ruled out for a portion of the population, and we are able to relate this finding to the "Peter Principle".

Keywords: personnel economics, promotion, dynamic discrete choices, random effects

JEL Classification: C33, J41, M5, M51

Suggested Citation

Belzil, Christian and Bognanno, Michael L., The Promotion Dynamics of American Executives (January 2004). IZA Discussion Paper No. 1003, GATE Working Paper No. 04-04, Available at SSRN: https://ssrn.com/abstract=500909

Christian Belzil (Contact Author)

Ecole Polytechnique, Paris - Department of Economic Sciences ( email )

Ecole Polytechnique
Department of Economics
Paris, 75005
France

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE)

92245 Malakoff Cedex
France

Institute for the Study of Labor (IZA)

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

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Michael L. Bognanno

Temple University - Department of Economics ( email )

Philadelphia, PA 19122
United States

IZA Institute of Labor Economics

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
128
Abstract Views
1,208
rank
242,258
PlumX Metrics