The purpose of this paper is to estimate the impact of job level changes on wages accounting for both the potential endogeneity of promotions and measurement error in job level changes.
Instruments for job level changes the workers' use belief about the possibility of a promotion from the previous period. Reasons why the respondent believes that a promotion is not possible are used as a second set of instruments. Also, the paper estimates separate wage effects for men and women.
The paper indicates that promotions carry a roughly 18 percent wage increase; compared to a 7 percent premium when using ordinary least squares estimation. The paper also finds that men receive much larger wage increases when promoted, compared with women.
This is the first paper to account for the endogeneity of promotions in wage estimates. Accurately estimating the relationship between job level changes and wages helps people to understand wage growth over a worker's lifetime.
