Promotions and the Peter Principle

Alan Benson, Danielle Li and Kelly Shue

No 24343, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The best worker is not always the best candidate for manager. In these cases, do firms promote the best potential manager or the best worker in her current job? Using microdata on the performance of sales workers at 214 firms, we find evidence consistent with the “Peter Principle,” which predicts that firms prioritize current job performance in promotion decisions at the expense of other observable characteristics that better predict managerial performance. We estimate that the costs of promoting workers with lower managerial potential are high, suggesting either that firms are making inefficient promotion decisions or that the benefits of promotion-based incentives are great enough to justify the costs of managerial mismatch.

JEL-codes: J01 M5 M51 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-bec, nep-hrm and nep-lab
Note: CF LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as Alan Benson & Danielle Li & Kelly Shue, 2019. "Promotions and the Peter Principle*," The Quarterly Journal of Economics, vol 134(4), pages 2085-2134.

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