The Korean Economic Review
Promotion and Work Incentive for a Future Job
Sangwon Park (Hankuk University of Foreign Studies)Year 2016Vol. 32No. 2
We presented a simple model in which agents could determine effort level with theprospect of promotion. Even without any increase of payment or fringe benefits, promotioncould provide an incentive for hard work because it could be a signal of one’s ability and thepossibility of a better job offer in one’s future career. Outside firms that cannot observe theagents’ current performance use promotion status in order to predict the agents’ ability. Wepoint out that some of the results of the standard career concerns model do not hold here.Because promotion is a binary decision, extra effort becomes effective only when thepromotion has not been made without it. This shows that the dispersion of an agent’s abilityand noise as well as well-known signal-to-noise ratio play important roles in promotion.