Research

This paper studies how internal promotions shape wages over subsequent employer-to-employer (E2E) moves and unemployment-to-employer (U2E) transitions. Using panel data from the National Longitudinal Survey of Youth 1979 (NLSY79), I estimate event-study wage dynamics around promotions and track post-promotion wage changes across labor-market transitions. I find that promotions raise wages by about 17% on average and are followed by a sustained acceleration in wage growth. Promotion-induced wage gains largely survive E2E moves, but are selectively undone after unemployment: workers with a prior promotion experience an average 12% wage loss upon re-employment, while otherwise similar non-promoted workers exhibit no average wage loss. Moreover, wage losses for promoted workers increase sharply with unemployment duration (about 0.97 percentage points per month), compared with a much flatter profile for non-promoted workers (about 0.43 percentage points per month). To interpret these facts, I develop a model of promotions with asymmetric learning in which the incumbent firm observes worker performance, while the outside market infers ability from coarse, publicly observed career outcomes (promotion, retention, and unemployment duration). In simulations, the model reproduces the differential wage responses to U2E transitions while still matching the immediate impact of promotions on wages. ▴