Promotion signaling, discrimination, and positive discrimination policies

Abstract

This article studies discrimination in a model in which promotions are used as signals of worker ability. The model can account for statistical and taste‐based discrimination. In the short run, a positive discrimination policy is beneficial for workers in the middle of the ability distribution, because these workers are promoted if and only if the policy is in place. Instead, workers of either high or low ability suffer from the policy. In the long run, the policy benefits all targeted workers. The model can explain empirical findings about the effects of a gender quota on the boards of Norwegian companies.

Overconfidence and Gender Equality in the Labor Market

“…4 Starting with Waldman (1984), asymmetric learning in the labor market combined with promotion signaling has been studied theoretically and empirically as an important driver of labor market outcomes. Promotion signaling models are analyzed in Bernhardt (1995), Zábojník and Bernhardt (2001), Ghosh and Waldman (2010), DeVaro and Waldman (2012), Zábojník (2012), Waldman (2013), Gürtler and Gürtler (2015), Waldman (2016), DeVaro et al (2018, Gürtler and Gürtler (2019). 5 One way to think intuitively about promotion signaling in modern labor markets is that promotions are visible on social media and hiring platforms, potentially triggering hiring responses.…”

Worker visibility and firms' retention policies

“…We build on the seminal paper by Waldman (1984), who differentiates between executive and nonexecutive jobs. The setting by Waldman assumes asymmetric employer information, that is, only the worker's current employer knows his ability while all alternative employers can only observe his job assignment (for similar settings, see e.g., Dato et al, 2016; DeVaro & Waldman, 2012; Gürtler & Gürtler, 2015; Owan, 2004; Waldman, 1984; Zabojnik & Bernhardt, 2001). Importantly, in the setting of Waldman (1984) workers are perfectly visible both on executive and on nonexecutive jobs.…”

“…Thereby, it complements a number of papers that address employee poaching but focus on wage rises as the key instrument to retain workers. The seminal paper by Waldman (1984) and the subsequent papers building on it (e.g., Dato et al, 2016; DeVaro & Waldman, 2012; Ghosh & Waldman, 2010; Gürtler & Gürtler, 2015; Waldman, 1996; Waldman & Zax, 2016) consider asymmetric employer learning where poaching firms are less informed about a worker's ability compared to the worker's current employer 4. We complement these papers by introducing worker visibility to the setting, that is that the firm's job assignment directly impacts the visibility of the worker to the outside labor market.…”

“…55In analogy to the seminal contribution of Waldman (1984) and subsequent papers building on it (e.g., DeVaro & Waldman, 2012; Gürtler & Gürtler, 2015; Owan, 2004; Waldman & Zax, 2016), we assume linear production functions (and uniformly distributed ability). In Appendix , we show how the qualitative results of our model generalize in a setup with a broader class of production functions and distributions of ability.…”

Overconfidence and Gender Equality in the Labor Market

“…The prominent role of promotion tournaments as incentive systems in firms has been established both theoretically and empirically(Lazear & Rosen, 1981, Green & Stokey, 1983, Malcomson, 1984, Baker et al, 1994a,b, Prendergast, 1999, Bognanno, 2001, DeVaro, 2006, DeVaro et al, 2019.4 Starting withWaldman (1984), asymmetric learning in the labor market combined with promotion signaling has been studied theoretically and empirically as an important driver of labor market outcomes. Promotion signaling models are analyzed inBernhardt (1995),Zábojník & Bernhardt (2001),Ghosh & Waldman (2010), DeVaro & Waldman (2012,Zábojník (2012),Waldman (2013),Gürtler & Gürtler (2015),Waldman (2016), DeVaro et al (2018,Gürtler & Gürtler (2019).5 One way to think intuitively about promotion signaling in modern labor markets is that promotions are visible on social media and hiring platforms, potentially triggering hiring responses.…”