Why Some Jobs Command Wage Premiums: A Test of Career Tournament and Internal Labor Market Hypotheses

The wage premiums associated with jobs in a large organization were identified through comparing their pay to the prevailing wages in the relevant outside labor markets. We then examined the characteristics of those jobs to investigate why some commanded larger premiums than others. Jobs at the tops of promotion ladders, jobs requiring many organization-specific skills, and to a lesser extent, jobs with access to influence commanded greater wage premiums. Wages above market rates appear important in supporting the internal labor market mechanisms associated with these jobs. Findings may clarify the factors compensation managers should consider when positioning wage rates. Examination of these issues is a potentially important bridge between the study of internal labor markets in organizational research and the study of wages in economics.

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