American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Promotion Signaling and Human Capital Investments
American Economic Journal: Microeconomics
vol. 12,
no. 1, February 2020
(pp. 125–55)
Abstract
In a world characterized by asymmetric learning, promotions can serve as signals of worker ability, and this, in turn, can result in inefficient promotion decisions. If the labor market is competitive, the result will be practices that reduce this distortion. We explore how this logic affects human capital investment decisions. We show that, if commitment is possible, investments will be biased toward the accumulation of firm-specific human capital. We also consider what happens when commitment is not possible and show a number of results including that, if investment choices are not publicly observable, choices are frequently efficient.Citation
Waldman, Michael, and Ori Zax. 2020. "Promotion Signaling and Human Capital Investments." American Economic Journal: Microeconomics, 12 (1): 125–55. DOI: 10.1257/mic.20180285Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- M12 Personnel Management; Executives; Executive Compensation
- M51 Personnel Economics: Firm Employment Decisions; Promotions
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