Internal labor markets, promotions, and worker skill: An indirect test of skill ILMs

Abstract

The determinants of intrafirm mobility within the internal labor markets (ILMs) of one large, regional bank and one small town bank are examined. The literature on the banking industry suggests that internal labor markets exist there, and that job changes within these markets are based on the development of skill rather than on seniority. It is suggested that in skill ILMs, promotions will be a positive function of the employees' duration in the present job; while in a seniority-based ILM, promotions will be a positive function of tenure with the firm prior to the present job. These findings, for men but not women, support the hypothesis that skill rather than seniority-based ILMs are present in each bank. The findings for women suggest that they work in “firm” or secondary labor markets. While the two banks are similar in the way other factors determine mobility, differences are also found which may be explained by the size and sectoral location of each bank.