Internal Labor Markets and the Competition for Managerial Talent
This paper establishes new facts on managerial hiring strategies of Danish firms that motivate a model of the market for managers with two-sided heterogeneity. In the model, internal labor markets arise from asymmetric learning and firm-specific human capital. Production complementarities between firm productivity and manager talent result in better firms recruiting more promising candidates and developing talent through training and internal promotion. I estimate the model and find substantial but decreasing returns to firm-specific knowledge and lower information asymmetries over time. Better signals of talent intensify market competition for the best managers, improve sorting, and help explain increasing upper-tail inequality.
Friedrich, Benjamin. 2019. Internal Labor Markets and the Competition for Managerial Talent.