Trends in Worker Displacement Penalties in Japan: 1991-2005

We examine the period from 1991 to 2005 to document the effects of a changing Japanese labor market on trends in the cost of job change. During this period, job change penalties and the extent to which they were age-related grew. Evidence is also found of a diminishing specificity in human capital (in industry, occupation and firm size) for job changers in the Japanese labor market. As might be expected, older workers and workers leaving the largest firms suffered the largest wage losses from job change. Older workers were also harmed more by involuntary job separations. In percentage terms, young females have larger wage losses than young males but older females have smaller losses than older males. This pattern is masked in considering only the overall effect of gender on the cost of job change.Displacement

The Promotion Dynamics of American Executives

We formulate an empirical model of promotion with dynamic selfselection where the current promotion probability depends on the hierarchical level in the firm, individual human capital, unobserved (to the econometrician) individual specific attributes, time varying firm specific variables (firm size and profits) as well as endogenous past promotion histories. We examine the causal effect of previous promotion histories (as measured by realized speed of promotion) on future promotion outcomes. The model is fit on an 8 year panel of promotion histories of 30,000 American executives employed in more than 380 different firms. The stochastic process generating promotions is weakly correlated with standard human capital endowment variables (age, schooling and tenure). It may be viewed as a series of promotion probabilities which become smaller as an individual moves up in the hierarchy and is primarily explained by individual (or firm) specific factors other than measured human capital. We also find that, conditional on unobservables, the promotion probability is only mildly enhanced, on average, by the speed of promotion achieved in the past (a structural fast track effect). However, we find the existence of a relatively high cross-sectional dispersion in the effect of past promotion histories and we are able to provide an explanation for this relatively high dispersion. In general, the magnitude of the individual specific effect of achieved speed of promotion is inversely related to accumulated human capital (schooling and tenure). We believe that these findings are consistent with the hypothesis that the signaling aspect of past promotions is stronger for those who are less educated and stronger for those who are relatively new in a firm. We also find that a negative correlation between current promotion and past speed of promotion cannot be ruled out for a portion of the population, and we are able to relate this finding to the “Peter Principle”.dynamic discrete choices; personnel economics; promotions

Promotions, Demotions, Halo Effects and the Earnings Dynamics of American executives

This paper explores the dynamics of wage growth in corporate hierarchies. Using panel data techniques, we estimate the causal effect of current and past transitions in reporting level and past earnings growth on components of current earnings and earnings growth using a large panel of US executives. After conditioning on unobserved heterogeneity, current compensation growth is positively correlated with past promotion outcomes but negatively correlated with past compensation growth. In a flexible model of wage growth, there is an important asymmetry between the effect of a promotion and a demotion. The effect of promotion is smaller in magnitude than the effect of a demotion. The causal effect of a promotion is positive on both growth in base pay and total cash compensation but is negative on bonus growth. The effect of a demotion is negative on growth in all pay components.wage growth ; corporate hierarchies

The Promotion Dynamics of American Executives

We formulate an empirical model of promotion with dynamic selfselection where the current promotion probability depends on the hierarchical level in the firm, individual human capital, unobserved (to the econometrician) individual specific attributes, time varying firm specific variables (firm size and profits) as well as endogenous past promotion histories. We examine the causal effect of previous promotion histories (as measured by realized speed of promotion) on future promotion outcomes. The model is fit on an 8 year panel of promotion histories of 30,000 American executives employed in more than 380 different firms. The stochastic process generating promotions is weakly correlated with standard human capital endowment variables (age, schooling and tenure). It may be viewed as a series of promotion probabilities which become smaller as an individual moves up in the hierarchy and is primarily explained by individual (or firm) specific factors other than measured human capital. We also find that, conditional on unobservables, the promotion probability is only mildly enhanced, on average, by the speed of promotion achieved in the past (a structural fast track effect). However, we find the existence of a relatively high cross-sectional dispersion in the effect of past promotion histories and we are able to provide an explanation for this relatively high dispersion. In general, the magnitude of the individual specific effect of achieved speed of promotion is inversely related to accumulated human capital (schooling and tenure). We believe that these findings are consistent with the hypothesis that the signaling aspect of past promotions is stronger for those who are less educated and stronger for those who are relatively new in a firm. We also find that a negative correlation between current promotion and past speed of promotion cannot be ruled out for a portion of the population, and we are able to relate this finding to the "Peter Principle". Dans ce papier, nous estimons un modèle dynamique de promotion où la notion d'effet causal (causal fast track) est différenciée de la notion non-causale (spurious fast track). La probabilité de promotion est fonction du niveau hiérarchique dans la firme, des attributs observables et non observables des individus, des attributs observables (et dynamiques) de la firme (tels que les profits et la taille), ainsi que de l'historique (endogène) des promotions passées mesuré par la rapidité moyenne de promotion. Le modèle est appliqué à un échantillon de 30 000 cadres du secteur privé américain, travaillant pour plus de 380 grandes firmes. Les résultats indiquent que le processus aléatoire générant les promotions dépend faiblement du niveau de capital humain, et très peu de la vitesse passée, mais beaucoup plus des facteurs non observables tels que la motivation. Les résultats montrent également qu'il y a une large dispersion dans l'effet de la vitesse de promotion sur les promotions futures. Bien que l'effet soit positif en moyenne, il est négatif pour une sous-population. De façon générale, l'effet de la vitesse passée décroît avec le niveau de capital humain et l'ancienneté dans la firme. L'effet négatif de la vitesse de promotion est compatible avec le "principe de Peter", souvent mentionné dans la littérature sur la dynamique des promotions.personnel economics, promotions, dynamic discrete choices, random effects, promotions, tournois, choix discrets dynamiques, économie des ressources humaines, effets aléatoires

Promotions, Demotions, Halo Effects and Earnings Dynamics of American Executives

This paper explores the dynamics of wage growth in corporate hierarchies. Using panel data techniques, we estimate the causal effect of current and past transitions in reporting level and past earnings growth on components of current earnings and earnings growth using a large panel of US executives. After conditioning on unobserved heterogeneity, current compensation growth is positively correlated with past promotion outcomes but negatively correlated with past compensation growth. In a flexible model of wage growth, there is an important asymmetry between the effect of a promotion and a demotion. The effect of promotion is smaller in magnitude than the effect of a demotion. The causal effect of a promotion is positive on both growth in base pay and total cash compensation but is negative on bonus growth. The effect of a demotion is negative on growth in all pay components.earning growth ; promotion ; reputation

Do Tournaments Have Incentive Effects?

Much attention has been devoted to studying models of tournaments or situations in which an individual\u27s payment depends only on his or her output or rank relative to that of other competitors. Academic interest derives from the fact that under certain sets of assumptions, tournaments have desirable normative properties because of the incentive structures they provide. Our paper uses nonexperimental data to test whether tournaments actually elicit effort responses. We focus on professional golf tournaments because information on the incentive structure (prize distribution) and measures of individual output (players\u27 scores) are both available. We find strong support for the proposition that the level and structure of prizes in PGA tournaments influence players\u27 performance

The Incentive Effects of Tournaments Revisited: Evidence From the European PGA Tour

This analysis of data from the 1987 European Men\u27s Professional Golf Association (PGA) Tour strongly supports the hypothesis that the level and structure of prizes in PGA tournaments influence players\u27 performance. Specifically, players\u27 performance appears to vary positively with both the total money prizes awarded in a tournament and the marginal return to effort in the final round of play (a value that varies among players largely depending on how the prize money is allocated among finishers of different ranks). The authors suggest that these results, together with the similar results of their earlier study of the 1984 U.S. Men\u27s PGA Tour, may have implications for the design of compensation systems for certain groups of workers, such as corporate executives, college professors, and salespeople

Do Tournaments Have Incentive Effects?

Much attention has been devoted to studying models of tournaments or situations in which an individual's payment depends only on his output or rank, relative to other competitors. Such models are of more than academic Interest as they may well describe the compensation structures applicable to many corporate executives and professors, to sales people whose bonuses depend on their relative outputs. and to the more obvious example of professional sports tournaments. Academic interest derives from the fact that under certain sets of assumptions tournaments have desirable normative properties because of the incentive structures they provide. Our paper uses nonexperimental data to test if tournaments actually elicit desired effort responses. We focus on golf tournaments because information on the incentive structure (prize distribution) and measures of individual output (players' scores) are both available. Under suitable assumptions, players' scores can be related to players' effort and implications for both players' overall tournament scores and their scores on the last round of a tournament drawn. In addition, data are available to control for factors other than the incentive structure that should affect output; these factors include player quality, quality of the rest of the field, difficulty of the course, and weather conditions. The data used in our analyses cane from the "1985 Golf Digest Almanac", the "Official 1985 PGA Tour Media Guide", and the "1984 PGA Tour Player Record". We find strong support for the proposition that the level and structure of prizes in PGA tournaments influence players' performance.

The Promotion Dynamics of American Executives

Working Paper du GATE 2004-04We formulate an empirical model of promotion with dynamic selfselection where the current promotion probability depends on the hierarchical level in the firm, individual human capital, unobserved (to the econometrician) individual specific attributes, time varying firm specific variables (firm size and profits) as well as endogenous past promotion histories. We examine the causal effect of previous promotion histories (as measured by realized speed of promotion) on future promotion outcomes. The model is fit on an 8 year panel of promotion histories of 30,000 American executives employed in more than 380 different firms. The stochastic process generating promotions is weakly correlated with standard human capital endowment variables (age, schooling and tenure). It may be viewed as a series of promotion probabilities which become smaller as an individual moves up in the hierarchy and is primarily explained by individual (or firm) specific factors other than measured human capital. We also find that, conditional on unobservables, the promotion probability is only mildly enhanced, on average, by the speed of promotion achieved in the past (a structural fast track effect). However, we find the existence of a relatively high cross-sectional dispersion in the effect of past promotion histories and we are able to provide an explanation for this relatively high dispersion. In general, the magnitude of the individual specific effect of achieved speed of promotion is inversely related to accumulated human capital (schooling and tenure). We believe that these findings are consistent with the hypothesis that the signaling aspect of past promotions is stronger for those who are less educated and stronger for those who are relatively new in a firm. We also find that a negative correlation between current promotion and past speed of promotion cannot be ruled out for a portion of the population, and we are able to relate this finding to the “Peter Principle”.Dans ce papier, nous estimons un modèle dynamique de promotion où la notion d'effet causal (causal fast track) est différenciée de la notion non-causale (spurious fast track). La probabilité de promotion est fonction du niveau hiérarchique dans la firme, des attributs observables et non observables des individus, des attributs observables (et dynamiques) de la firme (tels que les profits et la taille), ainsi que de l'historique (endogène) des promotions passées mesuré par la rapidité moyenne de promotion. Le modèle est appliqué à un échantillon de 30 000 cadres du secteur privé américain, travaillant pour plus de 380 grandes firmes. Les résultats indiquent que le processus aléatoire générant les promotions dépend faiblement du niveau de capital humain, et très peu de la vitesse passée, mais beaucoup plus des facteurs non observables tels que la motivation. Les résultats montrent également qu'il y a une large dispersion dans l'effet de la vitesse de promotion sur les promotions futures. Bien que l'effet soit positif en moyenne, il est négatif pour une sous-population. De façon générale, l'effet de la vitesse passée décroît avec le niveau de capital humain et l'ancienneté dans la firme. L'effet négatif de la vitesse de promotion est compatible avec le "principe de Peter", souvent mentionné dans la littérature sur la dynamique des promotions