Managing Careers in Organization

Rongzhu Ke, Jin Li and Michael Powell

Journal of Labor Economics

2016

Firms' organizational structures impose constraints on their ability to use promotion-based incentives. We develop a framework for identifying these constraints and exploring their consequences. We show that firms manage workers' careers by choosing personnel policies that resemble an internal labor market. Firms may adopt forced-turnover policies to keep lines of advancement open, and they may alter their organizational structures to relax these constraints. This gives rise to a trade-off between incentive provision at the worker level and productive efficiency at the firm level. Our framework generates novel testable implications that connect firm-level characteristics with workers' careers.

Economics of Contract: Theory, Labor Contracts, Personnel Economics: Firm Employment Decisions, Promotions

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