A theory of wage and promotion dynamics inside firms

We show that a framework that integrates job assignment, human-capital acqu isition, and learning captures several empirical findings concerning wage a nd promotion dynamics inside firms, including the following. First, real-wa ge decreases are not rare but demotions are. Second, wage increases are ser ially correlated. Third, promotions are associated with large wage increase s. Fourth, wage increases at promotion are small relative to the difference between average wages across levels of the job ladder. Fifth, workers who receive large wage increases early in their stay at one level of the job la dder are promoted quickly to the next.