Horizontal transfer, vertical promotion, and evolution of firm organization

Abstract

This paper investigates interactions among horizontal transfers, promotions across ranks, and creation and destruction of jobs inside a large Japanese manufacturing firm. In this sample firm, we find that job creation and destruction accounts for the majority of horizontal transfers of employees within the firm. This is in sharp contrast to a popular perception that employees move according to a well-defined career path in a stable organization with an internal labor market. Instead, we find that units and jobs are constantly created and destroyed at this firm and that individual career paths are far more dynamic and state and path dependent than the popular perception would suggest. The econometric analysis on determinants of promotion policy confirm these findings, as well as predictions based on the multi-skilling model of human capital. First of all, transfers to functionally similar units which enable employees to acquire multiple skills do enhance promotion probability. On the other hand, transfers to functionally or geographically different units are often detrimental to the promotion prospect, especially those that occur at earlier stages of an employee's career. In general, an employee's career at this firm is significantly influenced by the success or failure of particular units and, in particular, we find that the promotion probability for some types of employees is significantly higher for those transferred from sections that had been eliminated, and also for those transferred into newly created sections. J. Japanese Int. Economies 20 (1) (2006) 20–49.