IDEAS home Printed from https://ideas.repec.org/a/bla/metroe/v71y2020i3p496-509.html
   My bibliography  Save this article

Human capital acquisition as a competitive response to the promotion distortion

Author

Listed:
  • Ori Zax

Abstract

Waldman shows that under the assumption that prospective employers observe whether a worker was promoted, but cannot observe his ability, the promotion policy is inefficient. In the current paper, we show that human capital acquisition made after the players (both worker and employer) observe the worker's ability reduces this inefficiency, even though such an investment is not optimal in some setups.

Suggested Citation

  • Ori Zax, 2020. "Human capital acquisition as a competitive response to the promotion distortion," Metroeconomica, Wiley Blackwell, vol. 71(3), pages 496-509, July.
    • Handle: RePEc:bla:metroe:v:71:y:2020:i:3:p:496-509
    DOI: 10.1111/meca.12286
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/meca.12286
    Download Restriction: no
    File URL: https://libkey.io/10.1111/meca.12286?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    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. Xin Jin & Michael Waldman, 2020. "Lateral Moves, Promotions, and Task-Specific Human Capital: Theory and Evidence," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 36(1), pages 1-46.
    3. Dan Bernhardt, 1995. "Strategic Promotion and Compensation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(2), pages 315-339.
    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. Christian Belzil & Michael Bognanno, 2010. "The promotion dynamics of American executives," Research in Labor Economics, in: Jobs, Training, and Worker Well-being, pages 189-231, Emerald Group Publishing Limited.
    6. Elena Sochirca & Oscar Afonso & Sandra T. Silva, 2017. "Political Rivalry Effects on Human Capital Accumulation and Inequality: A New Political Economy Approach," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 699-729, November.
    7. repec:zbw:ifwedp:201242 is not listed on IDEAS
    8. Jed DeVaro & Hodaka Morita, 2013. "Internal Promotion and External Recruitment: A Theoretical and Empirical Analysis," Journal of Labor Economics, University of Chicago Press, vol. 31(2), pages 227-269.
    9. 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.
    10. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer.
    11. 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.
    12. Emre Ekinci & Antti Kauhanen & Michael Waldman, 2019. "Bonuses and Promotion Tournaments: Theory and Evidence," The Economic Journal, Royal Economic Society, vol. 129(622), pages 2342-2389.
    13. Waldman, Michael, 2016. "The dual avenues of labor market signaling," Labour Economics, Elsevier, vol. 41(C), pages 120-134.
    14. 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.
    15. 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.
    16. David Wettstein & Ori Zax, 2018. "Promotion Policies of Workers who Observe their Ability," Economics Bulletin, AccessEcon, vol. 38(4), pages 2509-2514.
    17. Jan Zábojník & Dan Bernhardt, 2001. "Corporate Tournaments, Human Capital Acquisition, and the Firm Size—Wage Relation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(3), pages 693-716.
    18. Canice Prendergast, 1993. "The Role of Promotion in Inducing Specific Human Capital Acquisition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 523-534.
    19. Katz, Eliakim & Ziderman, Adrian, 1990. "Investment in General Training: The Role of Information and Labour Mobility," Economic Journal, Royal Economic Society, vol. 100(403), pages 1147-1158, December.
    20. 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.
    21. Scoones, David & Bernhardt, Dan, 1998. "Promotion, Turnover, and Discretionary Human Capital Acquisition," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 122-141, January.
    22. Michael Waldman & Ori Zax, 2020. "Promotion Signaling and Human Capital Investments," American Economic Journal: Microeconomics, American Economic Association, vol. 12(1), pages 125-155, February.
    23. Prasad, Suraj & Tran, Hien, 2013. "Work practices, incentives for skills, and training," Labour Economics, Elsevier, vol. 23(C), pages 66-76.
    24. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    25. 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.
    26. Ori Zax, 2012. "Promotion Policy and Firm Size," Economics Bulletin, AccessEcon, vol. 32(4), pages 3347-3356.
    27. Michael Bognanno & Eduardo Melero, 2016. "Promotion Signals, Experience, and Education," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(1), pages 111-132, March.
    28. Michael Waldman & Ori Zax, 2016. "An Exploration of the Promotion Signaling Distortion," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(1), pages 119-149.
    29. Demougin, Dominique & Siow, Aloysius, 1994. "Careers in Ongoing Hierarchies," American Economic Review, American Economic Association, vol. 84(5), pages 1261-1277, December.
    30. Chang, Chun & Wang, Yijiang, 1996. "Human Capital Investment under Asymmetric Information: The Pigovian Conjecture Revisited," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 505-519, July.
    31. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    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. Chen Cohen & Ori Zax, 2022. "Human capital acquisition as a signaling device in promotion competition," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 550-566, May.

    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. Jed DeVaro & Suman Ghosh & Cindy Zoghi, 2018. "Job Characteristics and Labor Market Discrimination in Promotions," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 57(3), pages 389-434, July.
    2. 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.
    3. Jed DeVaro & Oliver Gürtler, 2020. "Strategic shirking in competitive labor markets: A general model of multi‐task promotion tournaments with employer learning," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(2), pages 335-376, April.
    4. Jin, Xin, 2014. "The Signaling Role of Note Being Promoted: Theory and Evidence," MPRA Paper 58484, University Library of Munich, Germany.
    5. Chen Cohen & Ori Zax, 2022. "Human capital acquisition as a signaling device in promotion competition," Metroeconomica, Wiley Blackwell, vol. 73(2), pages 550-566, May.
    6. Xin Jin, 2014. "The Signaling Role of Not Being Promoted: Theory and Evidence," Working Papers 0314, University of South Florida, Department of Economics.
    7. David Wettstein & Ori Zax, 2018. "Promotion Policies of Workers who Observe their Ability," Economics Bulletin, AccessEcon, vol. 38(4), pages 2509-2514.
    8. Deutscher, Christian & Gürtler, Marc & Gürtler, Oliver & DeVaro, Jed, 2020. "Firm choice and career success - theory and evidence," European Economic Review, Elsevier, vol. 127(C).
    9. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    10. Spencer Bastani & Thomas Giebe & Oliver Gürtler, 2023. "Overconfidence and Gender Equality in the Labor Market," ECONtribute Discussion Papers Series 220, University of Bonn and University of Cologne, Germany.
    11. Michael Waldman & Ori Zax, 2016. "An Exploration of the Promotion Signaling Distortion," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(1), pages 119-149.
    12. Waldman, Michael, 2016. "The dual avenues of labor market signaling," Labour Economics, Elsevier, vol. 41(C), pages 120-134.
    13. Ekinci, Emre, 2022. "Employee entrepreneurship and signaling role of corporate venturing decisions," Labour Economics, Elsevier, vol. 79(C).
    14. Waldman, Michael, 2013. "Classic promotion tournaments versus market-based tournaments," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 198-210.
    15. DeVaro, Jed, 2011. "Using "opposing responses" and relative performance to distinguish empirically among alternative models of promotions," MPRA Paper 35175, University Library of Munich, Germany.
    16. 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.
    17. 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.
    18. Michael Waldman, 2012. "Theory and Evidence in Internal LaborMarkets [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    19. Prasad, Suraj & Tran, Hien, 2013. "Work practices, incentives for skills, and training," Labour Economics, Elsevier, vol. 23(C), pages 66-76.
    20. 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.
    21. Oliver Gürtler & Lennart Struth, 2021. "Do Workers Benefit from Wage Transparency Rules?," ECONtribute Discussion Papers Series 105, University of Bonn and University of Cologne, Germany.

    More about this item

    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:bla:metroe:v:71:y:2020:i:3:p:496-509. 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: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0026-1386 .

    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.