This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

Promotion Signaling and Human Capital Investments

  • Michael Waldman
  • Ori Zax
American Economic Journal: Microeconomics
vol. 12, no. 1, February 2020
(pp. 125-55)
Download Full Text PDF

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.20180285

Additional 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
There are no comments for this article.
Login to Comment