Jed DeVaro

The Signaling Role of Promotions: Further Theory and Empirical Evidence

An extensive theoretical literature investigates the role of promotions as a signal of worker ability. We extend the theory by focusing on how the signaling role of promotion varies with education and then investigate the resulting predictions using a longitudinal data set that contains detailed information concerning the internal-labor-market history of a medium-sized firm in the financial services industry. Our results support signaling being important for understanding the differences between promotion practices concerning bachelor’s and master’s degree holders, while the evidence concerning the importance of signaling for high school graduates and PhDs is mixed.

Analysing the job characteristics model: new support from a cross-section of establishments

We evaluate the empirical relevance of the Job Characteristics Model of Hackman and Oldham in the modern organizational environment using unique, nationally representative data from a survey of British establishments. The data contain information on a large number of establishments and multiple workers within each establishment. The results generally support the Job Characteristics Models predictions that task variety and worker autonomy are positively associated with labour productivity and product quality and that autonomy is positively associated with worker satisfaction. In contrast to previous studies, we find the results for task variety are stronger for the performance-related outcomes than for worker satisfaction. The theoretically predicted moderating effect of context satisfaction is largely unsupported in the data.

Promotions and Incentives in Nonprofit and For- Profit Organizations

Using data from the 1992–95 Multi-City Study of Urban Inequality, an employer survey, the authors document a new empirical finding that workers are less likely to receive promotions in nonprofit organizations than in for-profit firms. The study also uncovers evidence that wage increases associated with promotion were of comparable magnitudes in the two sectors, as was the potential for within-job wage growth; nonprofits were less likely than for-profits to base promotions on job performance or merit; nonprofits were less likely to use output-contingent incentive contracts to motivate workers; and the observed difference in promotion rates between the nonprofit and for-profit sectors was more pronounced for high-skilled than for low-skilled workers. The authors also propose a theory that potentially explains the broad pattern of evidence they uncover, based on the idea that nonprofit workers are more intrinsically motivated (attracted to their work for reasons transcending material compensation) than are for-profit workers.

An Empirical Analysis of Risk, Incentives and the Delegation of Worker Authority

The authors empirically test Prendergasts (2002) theory that incorporates the delegation of worker authority into the principal-agent model to explain the lack of consistent empirical support for a tradeoff between risk and incentives. Using data from the 1998 British WERS, the authors investigate whether there is: 1) evidence of a risk-incentives tradeoff as predicted by the principal-agent model; 2) evidence of a positive relationship between incentive pay and the delegation of worker authority; 3) evidence of a positive relationship between risk and authority; 4) support for the main testable implication of Prendergasts model, namely that the evidence favoring a risk-incentives tradeoff should strengthen when authority controls are added to the empirical model. The answers are affirmative for all four questions, thereby providing evidence clarifying the relationship between risk and incentive pay and how managers optimally bundle incentive pay and the delegation of worker decision rights to cope with risk.

The Effects of Self-Managed and Closely Managed Teams on Labor Productivity and Product Quality: An Empirical Analysis of a Cross-Section of Establishments

I estimate the effect of team production on labor productivity and product quality using a cross-section of British establishments, finding that the typical establishment enjoys statistically significant increases in labor productivity (but not product quality) from using teams, although there is no statistically significant difference between the predicted gains from autonomous versus nonautonomous teams. I show that standard methodological approaches that treat teams and autonomy as exogenous induce biases of two forms: (1) the benefits from teams are inflated, and (2) the benefits of autonomous teams relative to those of nonautonomous teams are inflated.

Internal Promotion and External Recruitment: A Theoretical and Empirical Analysis

We present a theoretical and empirical analysis of internal promotion versus external recruitment, using a job-assignment model involving competing firms with heterogeneous productivities and two-level job hierarchies with one managerial position. The model predicts that, controlling for the number of managers, increasing the number of lower-level workers is associated with (1) greater internal promotion as opposed to external recruitment, (2) higher profit, and (3) more general training. Empirical analysis of a large cross section of British employers is consistent with these predictions.

Job Characteristics and Labor Market Discrimination in Promotions: New Theory and Empirical Evidence

We present new theory and empirical evidence concerning racial discrimination in promotions. In our model, promotions signal worker ability. When tasks differ substantially across levels of a job hierarchy, the opportunity cost (in terms of foregone output) of not promoting qualified nonwhite workers is large, so employers are less likely to inefficiently retain these workers in lower-level jobs. Thus, given pre-promotion performance, the extent to which nonwhite workers have lower promotion probabilities should decrease when tasks vary more across levels. Also, the difference between white and nonwhite workers in the wage increase attached to promotion should diminish when tasks vary more across levels. We test these implications empirically using personnel data from a large U.S. firm and from the National Compensation Survey. Results support the theoretical model’s predictions concerning promotion probabilities, whereas support is mixed for the model’s predictions concerning the wage growth attached to promotions.

Gender Bias in Power Relationships: Evidence from Police Traffic Stops

We test for the existence of gender bias in power relationships. Specifically, we examine whether police officers are less likely to issue traffic tickets to men or to women during traffic stops. Whereas the conventional wisdom, which we document with surveys, is that women are less likely to receive tickets, our analysis shows otherwise. Examination of a pooled sample of traffic stops from five locations reveals no gender bias, but does show significant regional variation in the likelihood of citations. Analysis by location shows that women are more likely to receive citations in three of the five locations. Men are more likely to receive citations in the other two locations. To our knowledge, this study is the first to test for gender bias in traffic stops, and clearly refutes the conventional wisdom that police are more lenient towards women.

What Types of Organizations Benefit from Team Production, and How Do They Benefit?

Using data from a large cross section of British establishments, we ask how different firm characteristics are associated with the predicted benefits to organizational performance from using team production. To compute the predicted benefits from using team production, we estimate structural models for financial performance, labor productivity, and product quality, treating the firm’s choices of whether or not to use teams and whether or not to grant teams autonomy as endogenous. One of the main results is that many firm characteristics are associated with larger predicted benefits from teams to labor productivity and product quality but smaller predicted benefits to financial performance. For example, this is true for union recognition as measured by the number of recognized unions in an establishment. Similarly, when a particular firm characteristic is associated with lower benefits from teams to labor productivity or product quality, the same characteristic is frequently associated with higher predicted benefits to financial performance. This is true for the degree of financial participation and employee ownership and also for establishment size and a number of industries. These results highlight the advantages of analyzing broader measures of organizational performance that are more inclusive of the wide spectrum of benefits and costs associated with teams than the labor productivity measures frequently studied in the teams literature.

An “Opposing Responses” Test of Classic versus Market-Based Promotion Tournaments

We use a systems-based econometric method to show that classic and market-based tournament models are empirically distinguishable since the role of risk differs across these models. Implementing the method using a large, Finnish, worker-firm matched panel, we find support for classic tournaments given that promotions depend on relative performance, the firm’s wage structure is convex, promotion probabilities are decreasing in the number of competitors, performance is increasing in the wage spread, and workers and firms adjust their choice variables in opposite directions when the variance of the stochastic component of worker performance changes.