Events at CERGE-EI

Ludovica Ciasullo, MSc.

New York University, United States

Abstract: Promotions are a major driver of wage growth. I study how firms learn who to promote, when ability is hard to observe. Workers can exert costly effort in order to signal higher potential. Using Portuguese administrative data, I explore the role of a particular form of effort, overtime, in shaping careers in retail and hospitality. I develop a principalagent model showing how overtime hours serve as a signaling device within firms. I test the model using a 2012 reform that quasi-exogenously reduced the overtime pay premium for some workers. Consistent with the model, overtime hours fall posttreatment and promoted workers are better selected. These findings are inconsistent with alternative leading theories of internal labor markets.

Full Text: Signaling within the firm