Book Description

This dissertation focuses on the theoretical and empirical analysis of individuals' career and wage dynamics inside firms. It addresses three areas of interests in this field: human capital accumulation, signaling, and organization's structural change. The first chapter adopts a task-specific human capital perspective to examine the relationship between individuals' horizontal (i.e. lateral movements) and vertical (i.e. promotions) career mobility in a symmetric learning environment. It extends the theoretical literature on individuals' vertical career mobility by incorporating lateral moves in a standard job assignment model with task-specific human capital accumulation. The main intuition is that, when upper-level jobs require a wider set of task skills compared to lower level jobs, firms use lateral moves to develop their employees' task-specific human capital before promoting them. Consequently, lateral moves are positively correlated with individuals' career progressions. This model predicts that individuals who are laterally moved are more likely to be promoted and to experience larger wage growth compared to individuals who do not move. Further, individuals with very high levels of education are less likely to be laterally moved compared to individuals with lower education levels. These predictions are tested using a large employer-employee linked panel on over 30,000 senior managers in more than 500 of the largest U.S. firms during the period of 1981-1985. The empirical evidence supports the theoretical predictions and shows the importance of lateral mobility in individuals' career and wage dynamics. The second chapter addresses the signaling role of not being promoted and how individuals' wage-profiles are affected by those signals. There is an extensive body of lit- erature concerning the positive signals associated with promotion. However, theoretical investigations of negative signals associated with non-promotion are nearly nonexistent. In this chapter, a model with asymmetric learning is constructed to capture the negative signals associated with non-promotion. The model shows that, when productivity rises little with additional years on the same job level, the negative signal associated with non-promotion leads to wage decreases. On the other hand, a non-promoted worker's wage increases with additional job-level tenure when additional job-level tenure leads to a sizable increase in productivity. Furthermore, individuals who are promoted when human capital rises little from the previous period earn a lower promotion wage than those who are promoted in a previous period. These predictions are tested using the internal personnel records from a large US firm from 1970-1988. The results support the model's predictions to a large extent. In particular, there is a clear hump-shaped pattern in the wage-job-level-tenure profile for workers who stay in the same job level. This result suggests that, besides determining workers' levels of human capital, job tenure carries rich information about individuals' unobserved ability. The trade-off between negative learning and positive human capital accumulation associated with additional tenure shapes the wage-tenure profile. The third chapter examine the impact of organizational changes on wages and the wage distribution inside firms. Over the past twenty years, firms became flatter. There is an extensive literature - both theoretical and empirical - that explores the causes of this delayering trend. The consequences of this trend, on the other hand, are not sufficiently studied. This paper examines how wages and the wage distribution change with firm delayering. A job-assignment model with asymmetric information and a slot constraint is considered. The model predicts that more efficient firms are not necessarily larger than less efficient firms if firms are allowed to adjust their internal organizational structure through delayering. After delayering, wages at all levels increase and the wage distribution becomes more unequal. These predictions match a set of empirical findings in recent studies that are not well explained by existing theories.