Managing careers in organizations

Firms’ organizational structures impose constraints on their ability to use promotion-based incentives. We develop a framework for identifying these constraints and exploring their consequences. We show that firms manage workers’ careers by choosing personnel policies that resemble an internal labor market. Firms may adopt forced-turnover policies to keep lines of advancement open, and they may alter their organizational structures to relax these constraints. This gives rise to a trade-off between incentive provision at the worker level and productive efficiency at the firm level. Our framework generates novel testable implications that connect firm-level characteristics with workers’ careers.