Asymmetric information in external versus internal promotions

Individuals have two possible channels through which to obtain a managerial position: external and internal promotions. Employing the revised German Employment Register, we compare external and internal promotions by using multinomial logit regressions while accounting for workplace heterogeneity. Individual characteristics are hypothesized to exert differential effects because of their observability within and across workplaces. We find that actual working hours are a more important source of information for internal versus external promotions. By contrast, formal vocational degrees and initial job task complexity, which are also externally observed, are a relatively more important signal for external promotions. Consistent with statistical discrimination, women and foreigners face a more pronounced disadvantage in external promotions. For women, this differential effect is fully driven by promotions to executive positions characterized by high task complexity. Moreover, actual working hours show a strong positive interaction effect on women's prospects of promotion.