This paper uses a nation-wide representative survey of employees to examine whether more informative job promotions carry larger wage increases. In job assignment models with asymmetric information, unexpected promotions send a signal to the external labor market to revise upward their assessment of a worker’s ability. The employing firm must then increase wages to prevent the worker from being bid away. Less educated workers are assumed to come from a group with lower average ability. Their promotion is hypothesized to induce a larger positive update of the assessment of their ability than the promotion of more educated workers. Promotions of less experienced workers, with less known about their abilities, should also result in strong signaling effects. We obtain regression results consistent with our hypotheses, although the size and significance of the estimates hinge on the promotion definition. This sensitivity to the definition of promotion suggests that promotions reveal information on different dimensions of ability for different types of workers. Inexperienced workers gain more from management promotions than from non-managerial promotions, suggesting that employers do not in general expect managerial abilities of the inexperienced. Less educated workers gain more from non-managerial promotions, suggesting that employers do not expect the general abilities required in higher level positions of the less educated. |
