Asymmetric employer information, promotions, and the wage policy of firms

This paper provides evidence that inefficient promotion strategies and large wage increases upon promotion may both arise as a consequence of asymmetric employer information. We present a simple model that illustrates how both phenomena may jointly arise due to the information revealing character of promotions. Using experimental labor markets, we demonstrate that asymmetric employer information is a causal factor for both inefficient promotions and large wage increases upon promotion. Moreover, our data are consistent with the idea that the channel through which asymmetric employer information affects personnel policies is the information revealing character of promotions.