The rate of promotion and its effect on the wage in the public sector

18/11/2007 |  Mazar Yuval
All Press Releases In Subject:
Welfare Policy and Labor Market
Yuval Mazar
Abstract
Promotion of employees, i.e., awarding them a higher grade, is the most common way of rewarding them for their efforts. This study examines the effect of promotion on wages in Israel's public sector, and the frequency of promotions in the careers of employees in that sector. Promotions were found to contribute 60-70 percent of the total rise in an employee's wage during his career. Employees are promoted on average 12.5 times during their careers, and each promotion increases their wage by an average of 6.5 percent.
The results show a certain pattern in the way grades are distributed in the public sector in Israel: employees are promoted on average once in two to four years, and having been promoted once in that period, their chances of another promotion fall rapidly. Furthermore, promotions in previous years explain about 45 percent of the explained variance of the probability of promotion that year--a very high share that indicates that promotion is granted according to a set order. Another result is that the rate of promotion declined monotonically in the years from 1988 to 1996. This was apparently due to the fall in the inflation rate, which reduced the need to grant promotion as a way of compensating for the erosion of wages.
An important aim of promotion is to provide an incentive for staff to make an effort in their work, as they are competing with each other for promotions (which are fewer than the number of employees). Hence, employees' motivation is affected not only by the monetary value of promotions but also by their frequency.
The data indicate that the rate of promotion slows in the first two-thirds of an employee's career, with a far steeper decline in the last third. This is most apparent among those with higher education. One of the main reasons for the steep drop in the rate of promotion is the limited range of grades in each occupation. This leads to a situation in which senior staff, who have reached a position in which they face the prospect no of real promotion on the one hand, and the possibility of being dismissed on the other, will tend to reduce their output. It would be appropriate, therefore, to increase the chances of promotion for senior employees, by smoothing, i.e., lowering, the promotion path during employees' career, at the same time raising the wage increase associated with each promotion.
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