Asymmetric information in external versus internal promotions

Mario Bossler and Philipp Grunau
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Philipp Grunau: Institute for Employment Research (IAB)

Empirical Economics, 2020, vol. 59, issue 6, No 15, 2977-2998

Abstract: Abstract Employers have an incentive to fill managerial positions with the most able candidates, and they face a central choice of promoting from inside or outside the firm. With respect to the observability of the candidates’ quality, individual and job-specific characteristics might exert differential influences on these two channels of promotion. We conduct a close comparison of co-workers within occupation–workplace cells in multinomial logit regressions and thereby assess the drivers of external and internal promotions. The results demonstrate that overtime hours, which are observed only by the current employer, are more important for internal promotions, whereas formal educational degrees are more relevant for promotions across establishments. Moreover, the promotion gap for women and foreigners is large and particularly pronounced for promotions across workplaces. However, the disadvantage of women decreases when they work overtime hours.

Keywords: Promotions; Asymmetric information; Signaling; Statistical discrimination (search for similar items in EconPapers)
JEL-codes: J41 J70 M12 M51 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s00181-019-01749-7

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