Firm Productivity and the Internal-Versus-External Hiring Decision

Ricardo Alonso, Jed DeVaro, Antti Kauhanen and Nelli Valmari

No 21871, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We document, using Finnish employer-employee matched panel data, that more productive firms are more likely to hire internally than externally. This result is interpreted via a new theoretical model in which the superior management practices of high-productivity firms enable their managers to screen internal candidates more accurately when recruiting across multiple applicant pools to fill a vacancy. More internal hiring usually results. The model’s further predictions are empirically supported, e.g., internal hiring rates increase in applicant pool size, education level of the internal pool, and managerial performance and education.

JEL-codes: J62 J63 L2 M50 M51 (search for similar items in EconPapers)
Date: 2026-08
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