Managerial labour markets in transitional economies: evidence from Bulgaria

Using new survey data for Bulgarian executives during 1989‐1992,presents some of the first evidence on the nature of managerial labour markets for a country in transition. Finds that internal labour markets for managers are quite underdeveloped, suggesting insufficient firm‐specific human capital accumulation by managers, weak incentive effects of promotion tournaments, and an inability to use promotions as a job assignment mechanism; the use of incentive pay schemes (as compared to traditional fixed wage payments) is limited and is declining; and internal wage structures are relatively flat, leading to weak incentive effects for all contenders in the CEO promotional tournament and to an inability to ensure that the most able contenders will win. All these findings point to potentially serious inefficiencies and thus to serious public policy concerns. There exists an urgent need for a strategy to promote internal labour markets for managers, which would include both incentive pay systems for managers and steeper internal wage structures.