Testing the role of comparative advantage and learning in wage and promotion dynamics

Purpose – The purpose of this paper is to investigate empirically whether job assignment, based on comparative advantage and learning about workers’ abilities, can explain wage and promotion dynamics within firms. Design/methodology/approach – The Gibbons and Waldman model is estimated in a generalized method of moments (GMM) framework using a unique data set on white-collar workers in Norway, for the years 1987-1997. The estimation is carried out on two occupational groups: technical and administrative white-collar workers. Findings – The placing of workers in a given position within a firm's hierarchy is based on comparative advantage. Both measurable and unmeasurable skills are important. This holds in both occupations that were studied in this investigation. When it comes to firms’ learning about their workers, the results are not so clear; however, overall, the results on learning seem to have stronger support than found in previous studies. In general, there is more evidence for learning about administrative white-collar workers than learning about technical white-collar workers. Originality/value – This paper contributes to a very small thread of empirical literature concerning wage and promotion dynamics within firms using linked employer-employee data that contain detailed information on firm hierarchies.