Positive Selection of Employees
Abstract: This paper takes a step towards bridging the theory of internal labor market (ILM) and external labor market (ELM) by studying an integrative framework with job changes both inside and across firms. In particular, we consider a dynamic model, whereby firms use retention and promotion as the personnel policy to positively select the workforce (workers) concerning utility of working and abilities. The equilibrium captures three sets of empirical findings in a single setting. That is, (1) standard ILM findings (concerning the pay and promotion pattern inside firms); (2) standard ELM findings (concerning the pay and mobility pattern across firms); (3) standard, yet unexplained, findings on the “interaction” of ILM and ELM (concerning effects of promotion on exit rates and effects of entry routes on career paths and workforce compositions).
