An Empirical Analysis of Career Dynamics and Internal Labor Markets during the Great Depression

This paper uses personnel records for workers employed by the Canadian Pacific Railway (CPR) between 1921 and 1944 to examine the extent to which observed career dynamics are consistent with the predictions of various models of internal labor markets. In addition, the findings provide new insight into how internal labor markets responded to Great Depression. Similar to some previous empirical studies, wages are attached to jobs rather than workers at the CPR. Consistent with theoretical models emphasizing job matching and learning, promotion, demotion, and layoff probabilities decline over the job spell, and while fast-tracking is not present for promotions, it does protect workers from layoffs. Job characteristics play a larger role in explaining promotions. One feature that is not easily explained by many existing theoretical models is the widespread use of demotions by the CPR, even during periods of expansion. The CPR appears to have been a very attractive employer during this period, since those demoted were no more likely to quit the firm than those who were not. Human capital requirements play a major role in explaining how the firm’s internal labor market responded to the Great Depression. Comparing two job hierarchies within the firm, employees with significant firm-specific human capital were demoted down the job ladder during this period, while those with more general skills were laid off rather than demoted. JEL Classifications: J41 Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets N32 Economic History – Labor, Demography, Education, Income, and Wealth, U.S.; Canada: 19131971