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Asymmetric employer information, promotions, and the wage policy of firms

Simon Dato, Andreas Grunewald, Matthias Kräkel () and Daniel Müller

Games and Economic Behavior, 2016, vol. 100, issue C, 273-300

Abstract: This paper provides evidence that inefficient promotion strategies and large wage increases upon promotion may both arise as a consequence of asymmetric employer information. Building on the seminal work by Waldman (1984a) and Milgrom and Oster (1987), we first present a model that illustrates how both phenomena may jointly arise due to the information revealing character of promotions. Using experimental labor markets, we find evidence consistent with asymmetric employer information being a causal factor for both inefficient promotions and large wage increases upon promotion. Furthermore, we analyze the effect of asymmetric employer information on profits and turnover.

Keywords: Invisibility hypothesis; Poaching; Promotion-as-signal hypothesis (search for similar items in EconPapers)
JEL-codes: C91 D82 J3 M5 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:eee:gamebe:v:100:y:2016:i:c:p:273-300