| ID | 187840 |
| Title Proper | Internal labor markets with two types of promotion and two tiers of salary |
| Other Title Information | theory and evidence from China |
| Language | ENG |
| Author | Jiang, Kun ; Wang, Susheng |
| Summary / Abstract (Note) | This paper shows the optimality of a two-tier linear salary scheme in internal labor markets and identifies conditions under which discretionary promotion is better than rule-based promotion and vice versa. Our main findings are: (1) regardless of whether discretionary promotion or rule-based promotion is used, a two-tier salary scheme is optimal; (2) the salary is contingent on promotion, which is fixed before and linear after promotion; (3) if the difference in human capital among agents is small, discretionary promotion is superior; (4) if the expected replacement cost of human capital is high, discretionary promotion is superior; (5) if the risk of facing/incurring a high replacement cost of human capital is high, discretionary promotion is superior; (6) if the chance of having a high human capital agent is high, rule-based promotion is likely to be superior; and (7) if the productivity improvement from a job promotion is large, rule-based promotion is likely to be superior. We have also found empirical evidence in support of our theory on the two-tier salary scheme. |
| `In' analytical Note | China Economic Review Vol. 72; Apr 2022: p.101756 |
| Journal Source | China Economic Review 2022-03 72 |
| Key Words | Internal Labor Market ; Linear Contract ; Two-tier Salary ; Discretionary Promotion ; Rule-Based Promotion |