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Skill Profiles, Observability and Firm Hierarchies: A Theory of Promotion and Compensation

Author

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  • Dan Bernhardt

Abstract

Within a hierarchical firm structure, the paper details how the composition of a worker's skills and the (non) observability of a worker's ability affect wage and promotion paths. Promotion takes place over time and is not efficient, as employers seek to exploit their inside information about a worker's ability. Employers are led to promote educated employees before their equally or more able, but uneducated, counterparts. The relationship between pay and performance at a given job grade is ambiguous. Explanations for fast track promotion plans, the lack of demotion for poor managers, and other empirical regularities are provided.

Suggested Citation

  • Dan Bernhardt, 1989. "Skill Profiles, Observability and Firm Hierarchies: A Theory of Promotion and Compensation," Working Paper 764, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:764
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    Cited by:

    1. Michael Waldman, 1990. "A Signalling Explanation for Seniority Based Promotions and Other Labor Market Puzzles," UCLA Economics Working Papers 599, UCLA Department of Economics.

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