[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/sef/csefwp/552.html
   My bibliography  Save this paper

Promotions and Training: Do Competitive Firms Set the Bar too High?

Author

Abstract
Firms use promotions to match workers with jobs that fit their ability, but also to provide incentives to exert on-the-job training effort. As promotions make workers more attractive in the labor market, firms will balance productivity and retention costs. I show that if workers exert firm-specific training effort, profit-maximizing firms that cannot commit to promotion rules promote fewer workers than efficient. Differently, if firms can commit to promotion bars, for instance by means of structured managerial practices, they set the bar efficiently. If workers acquire portable training, this directly increases retention costs. Firms that cannot commit to promotion bars will set them inefficiently high. In this case, workers are discouraged from training when competition for talent is fierce. If firms can commit to promotion bars, they set them lower than without commitment providing strong incentives for workers to acquire portable training. However, in this scenario the promotion bar may be set too low compared with the efficient talent allocation.

Suggested Citation

  • Luca Picariello, 2019. "Promotions and Training: Do Competitive Firms Set the Bar too High?," CSEF Working Papers 552, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:552
    as

    Download full text from publisher

    File URL: http://www.csef.it/WP/wp552.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Daron Acemoglu & Jörn-Steffen Pischke, 1998. "Why Do Firms Train? Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(1), pages 79-119.
    2. Dan Bernhardt, 1995. "Strategic Promotion and Compensation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(2), pages 315-339.
    3. repec:bla:jfinan:v:43:y:1988:i:3:p:593-616 is not listed on IDEAS
    4. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," NBER Chapters, in: Investment in Human Beings, pages 9-49, National Bureau of Economic Research, Inc.
    5. Guido Friebel & Matthias Heinz & Miriam Krueger & Nikolay Zubanov, 2017. "Team Incentives and Performance: Evidence from a Retail Chain," American Economic Review, American Economic Association, vol. 107(8), pages 2168-2203, August.
    6. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 921-955.
    7. Martin Gaynor & James B. Rebitzer & Lowell J. Taylor, 2004. "Physician Incentives in Health Maintenance Organizations," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 915-931, August.
    8. David H. Autor, 2001. "Why Do Temporary Help Firms Provide Free General Skills Training?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1409-1448.
    9. Paul Milgrom & Sharon Oster, 1987. "Job Discrimination, Market Forces, and the Invisibility Hypothesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(3), pages 453-476.
    10. Karachiwalla, Naureen & Park, Albert, 2017. "Promotion incentives in the public sector: Evidence from Chinese schools," Journal of Public Economics, Elsevier, vol. 146(C), pages 109-128.
    11. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December.
    12. Jin‐Hyuk Kim, 2014. "Employee Poaching: Why It Can Be Predatory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 35(5), pages 309-317, July.
    13. Adnan Q. Khan & Asim I. Khwaja & Benjamin A. Olken, 2016. "Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(1), pages 219-271.
    14. Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June.
    15. Sampsa Samila & Olav Sorenson, 2011. "Noncompete Covenants: Incentives to Innovate or Impediments to Growth," Management Science, INFORMS, vol. 57(3), pages 425-438, March.
    16. Ashraf, Nava & Bandiera, Oriana & Jack, B. Kelsey, 2014. "No margin, no mission? A field experiment on incentives for public service delivery," Journal of Public Economics, Elsevier, vol. 120(C), pages 1-17.
    17. Bruce C. Greenwald, 1986. "Adverse Selection in the Labour Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 325-347.
    18. Arijit Mukherjee & Lu�s Vasconcelos, 2018. "On the Trade-off between Efficiency in Job Assignment and Turnover: The Role of Breakup Fees," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(2), pages 230-271.
    19. Heski Bar-Isaac & Raphaël Lévy, 2022. "Motivating Employees through Career Paths," Journal of Labor Economics, University of Chicago Press, vol. 40(1), pages 95-131.
    20. Mark J. Garmaise, 2011. "Ties that Truly Bind: Noncompetition Agreements, Executive Compensation, and Firm Investment," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(2), pages 376-425.
    21. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
    22. Robert Gibbons & Michael Waldman, 1999. "A Theory of Wage and Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1321-1358.
    23. Picariello, Luca, 2017. "Organizational Design with Portable Skills," Discussion Paper Series in Economics 2/2017, Norwegian School of Economics, Department of Economics.
    24. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75(4), pages 352-352.
    25. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 881-919.
    26. McCue, Kristin, 1996. "Promotions and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 175-209, April.
    27. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    28. Scur, Daniela & Lemos, Renata, 2019. "The ties that bind: implicit contracts and management practices in family-run firms," CEPR Discussion Papers 13794, C.E.P.R. Discussion Papers.
    29. Sherwin Rosen, 1972. "Learning and Experience in the Labor Market," Journal of Human Resources, University of Wisconsin Press, vol. 7(3), pages 326-342.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Picariello, Luca, 2017. "Organizational Design with Portable Skills," Discussion Paper Series in Economics 2/2017, Norwegian School of Economics, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    2. Jin, Xin, 2014. "The Signaling Role of Note Being Promoted: Theory and Evidence," MPRA Paper 58484, University Library of Munich, Germany.
    3. Xin Jin, 2014. "The Signaling Role of Not Being Promoted: Theory and Evidence," Working Papers 0314, University of South Florida, Department of Economics.
    4. Tom Coupé & Valérie Smeets & Frédéric Warzynski, 2006. "Incentives, Sorting and Productivity along the Career: Evidence from a Sample of Top Economists," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(1), pages 137-167, April.
    5. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    6. Robert Gibbons & Michael Waldman, 2006. "Enriching a Theory of Wage and Promotion Dynamics inside Firms," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 59-108, January.
    7. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    8. Dato, Simon & Grunewald, Andreas & Kräkel, Matthias & Müller, Daniel, 2016. "Asymmetric employer information, promotions, and the wage policy of firms," Games and Economic Behavior, Elsevier, vol. 100(C), pages 273-300.
    9. Edward P. Lazear, 1995. "Personnel Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121883, April.
    10. Cassidy, Hugh & DeVaro, Jed & Kauhanen, Antti, 2016. "Promotion signaling, gender, and turnover: New theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 140-166.
    11. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
    12. Ekinci, Emre, 2019. "Discretionary bonuses and turnover," Labour Economics, Elsevier, vol. 60(C), pages 30-49.
    13. Suman Ghosh & Michael Waldman, 2010. "Standard promotion practices versus up‐or‐out contracts," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 301-325, June.
    14. Edward P. Lazear & Paul Oyer, 2012. "Personnel Economics [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    15. Ján Zábojník, 2012. "Promotion tournaments in market equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 51(1), pages 213-240, September.
    16. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    17. C. Sofia Machado & Miguel Portela, 2011. "Age and opportunities for promotion," NIPE Working Papers 03/2011, NIPE - Universidade do Minho.
    18. Baptista, Rui & Lima, Francisco & Preto, Miguel Torres, 2012. "How former business owners fare in the labor market? Job assignment and earnings," European Economic Review, Elsevier, vol. 56(2), pages 263-276.
    19. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    20. Alexander K. Koch & Eloïc Peyrache, 2011. "Aligning Ambition and Incentives," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(3), pages 655-688.
    21. Ferreira, Daniel & Nikolowa, Radoslawa, 2023. "Talent discovery and poaching under asymmetric information," LSE Research Online Documents on Economics 116044, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    Promotions; on-the-job training; poaching; career concerns.;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M53 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Training

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:552. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Maria Carannante (email available below). General contact details of provider: https://edirc.repec.org/data/cssalit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.